A return to growth

So why, you may ask, have I ground to a halt in my plans for a party? It's because there are worrying signs that the economic recovery is underpinned by loosening consumer credit and a house price boom - and for those with short memories - this is not good news. 

According to the Bank of England, the total amount of unsecured credit granted to households has been rising since the summer, driven by "market share objectives" and an improvement in the economic outlook.

Lenders expect availability to increase further as we head towards the end of the year, not least because "lenders reported that credit scoring criteria for unsecured lending were loosened significantly in Q3", according to the Bank, with all trends expected to continue in Q4.

Meanwhile, the daughter of a friend of mine was recently standing in a queue of around 50 people booked to view a £200,000 flat in an up-and-coming area of London.

The property was purchased in minutes by one of the fist across the threshold, probably spurred on by a London house prices boom powered by the Government's Help to Buy scheme and foreign investors.

So hooray for three consecutive quarters of economic growth but should we be partying? If the recovery was based on manufacturing ... yes... but if the recovery is based on house price rises and credit that won't withstand a base rate rise ... decidedly NO.

Latest figures from the Land Registry show London house prices up 9.3% year-on-year, compared with a 1.5 per cent gain across England and Wales as a whole.

Contrast this with the East Midlands, one of the worst areas of the country for low pay, where prices have managed a mere 1.4 per cent increase over the past year.

So, whatever the Government is up to with its Help to Buy scheme and other initiatives it would appear to be propagating a house price boom and economic growth that excludes just about everyone outside the South East?

Recently, The Daily Telegraph's Jeremy Warner made a plea to the Bank of England to "take away the punch bowl before the party gets started".

Quoting economist, Friedrich Hayek, he suggested that "expansionary policies in a recession will only postpone the necessary adjustment" and make the eventual resolution "more painful still".

Mr Warner's article concluded: "Britain is being cynically frog-marched into a pre-election credit boom, for which there may eventually be a quite heavy price to pay."

A salutary comment and looked more so as it appeared in an old Tory rag, albeit one of the best respected.

On that note, I am moving on to the SME funding landscape as sketched out by Ernst & Young's Independant Treasury Economic Model (ITEM) Club in their autumn forecast for financial services.
 
Apparently, demand for SME credit remains weak as firms continue to focus on reducing debts and conserving cash.

According to ITEM Club, it's harder to predict how the supply of SME credit will evolve - banks have made continued efforts to lend over the past year, but they have not always been able to do so at rates or terms have been attractive.

And capital will continue to be constrained if the Bank of England’s evolving regime of stress testing is anything to go by.

If that's not challenging enough, ITEM Club warns that most UK banks will remain constrained in their ability to increase net lending for the "foreseeable" future.

No punch bowls in sight for the commercial broker then, or a host of manufacturers ... and my party invitations have definitely been put on hold!

However, at this point, some domestic brokers in the South East may be looking rather dizzy - we seem to be a two-tier economy now, with London and the South East definitely not representing the country as a whole.