Britain is learning to love debt again -- and the Bank of England is being torn in two directions

Queues at Harbour Central Canary Wharf sales launch 072Galliard HomesA queue for a Galliard Homes ‘first time buyer’ development in Canary Wharf.

After years of post-financial crisis pain, Britain is getting increasingly comfortable with debt again.

Data released on Monday showed thatnet lending to individuals came in at £4.8 billion ($7.20 billion) for October. It’s the fourth month in a row over the £4 billion mark (the only four since 2008) and undoubtedly the strongest period for lending since the financial crisis began.

69,630 mortgage approvals were also recorded in October. That’s slightly lower than the 70,000 expected, but it’s still the second-strongest figure since January 2014 (the strongest was in August).

That net lending figure is still low by pre-crisis standards: Monthly lending in 2007 regularly topped £10 billion.

There’s a good argument that the pre-crash lending was unhealthy for the economy, and although it’s much lower now, it’s accelerating. There’s an increasing case for a modest liftoff in interest rates, which would suppress that credit creation a bit. Rates probably don’t need to be much higher, but there’s a reasonable case that the UK’s Bank rate shouldn’t be at its lowest level in history any longer.

But the Bank of England has to balance that against another big concern. Most importantly, it has an inflation target that it isn’t anywhere near hitting. Largely because of the effect of plunging oil prices, the British consumer price index has spent the last year bumping around 0% growth.

Even the “core” CPI measure, which strips out volatile items like food and energy grew at 1.1% in the year to October. the Bank of England’s own inflation report suggests that inflation will barely overshoot 2% over the next few years even if the BoE holds its benchmark rate at 0.5% (where it’s been since 2009) until the beginning of 2017.

The newest member of the Bank of England’s monetary policy committee, Gertjan Vlieghe, made unmistakably dovish noises in his first media interview in the Sunday Times. He argued that before the BoE raises rates it would be good to see stronger wage growth (perhaps above 3%) and since growth has slowed a little over the last 18 months, it would be good to see it stabilise or increase before hiking.

That seems to be the mood of a decent number of the MPC members. Though there are two members (Martin Weale and Ian McCafferty) that are either happy or nearly happy to see rates increase, and governor Mark Carney has made some hawkish noises in the past, there doesn’t seem to be any massive pressure internally for a rate hike. The BoE chief economist even thinks a rate cut might be the Bank’s most appropriate next move.

The BoE has one other trick up its sleeve — the Bank’s financial policy committee could deploy macroprudential tools to try to cool off lending in some sectors, without hitting the whole economy. Last year, Carney announced that British banks couldn’t make more than 15% of their lending at loan-to-income multiples of more than 4.5 times, in an attempt to try and get ahead of a potential credit surge.

The FPC meets again tomorrow, and it could pull something similar again.

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