Deflation in UK Credit

The Bank of England has reported that credit availability for households has collapsed in its Credit Conditions Survey for the first quarter of 2018. This accelerates a downtrend seen since 2016. The chart below shows the index that the Bank of England creates based on the question, “How has the availability of unsecured credit provided to households changed over the past three months?” The deflation of credit availability has been put down to tougher lending criteria being applied by banks and other lenders, perhaps in response to default rates increasing.


The UK stock market has been one of the worst performers year-to-date. This is a sign that social mood is transitioning from positive to negative, a symptom of which is tighter lending practices by financial institutions. Indeed, having recovered somewhat since a 2016 low, the relative performance of the UK banking sector is, once again, starting to deteriorate.

With businesses nervous about the UK’s imminent departure from the European Union, a murder epidemic in London and house prices falling as well, evidence is mounting that British social mood is increasingly negative. Conditions are ripe for deflation.