BoE's Cunliffe calls attention to quick growth in leveraged corporate loans

The top Bank of England official charged with avoiding that any future financial crisis will morph into a repeat of the economic rout of 2008 called attention to the recent strong growth in high risk loans to companies.

But overall, he appeared to sound a relative confident note on the outlook.

In remarks prepared for a speech at the London School of Economics, John Cunliffe, the BoE's deputy governor for financial stability, pointed out that the speed at which credit to households was growing did not appear to be foreshadowing an "impending correction".

Research carried out alongside Ben Broadbent, the BoE's deputy governor for monetary policy, in the past "very rapid credit growth" had proven to be a reliable lead indicator of such a correction.

Indeed, before the last financial crisis, credit to households was expanding at twice the rate of the UK's nominal gross domestic product, whereas now it was growing at the same pace.

Neither where debt-to-income levels increasing.

Nevertheless, Cunliffe said: "there have been signs that risk appetite has been growing quite fast in certain areas."

In that regard, and echoing cautious remarks from other policymakers around the world recently, he pointed to recent quick growth in leveraged corporate loans since 2017, or loans to high-risk lenders, mimicking similar developments in the States.

Growth in unsecured credit to households had also grown by more than 10% over the year ending in November 2016, he said, but had since fallen back.

In the meantime, demand for new mortgages had remained "pretty static", he added, although "it could accelerate if and when Brexit uncertainty is resolved in which case aggregate credit could begin to grow quickly and the FPC would need to consider how to respond."

Lastly, Cunliffe pointed out the overall high stock of debt in the UK economy, both by historical and international standards.

But he drew a degree of comfort from the fact that the situation might be somewhat less of a risk in the past.

"as I and my colleague Ben Broadbent have pointed out, there are reasons to believe that the sustainable level of debt may now be higher than in the past."