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mpc: 5 11 The annual growth rate of borrowing from banks and building societies by the household sector had been increasing continuously for a year and a half, and had been over 14% in November. Borrowing for consumption was estimated to have risen to around 10% of personal disposable income in 2002 Q3, and was likely to represent a similar proportion in the fourth quarter. Household debt was at historical highs as a percentage of income. However, the inflation-adjusted household saving ratio was close to its average level for the past 20 years, and the personal sector's net financial deficit had been estimated at around zero in recent quarters. That implied that households had in aggregate been acquiring financial assets at the same rate as debt. It was difficult to assess from this information how great was the risk that the personal sector in aggregate might need to reduce its borrowing and consumption abruptly if there were an adverse shock. With nominal interest rates low, households' debt servicing was also low and seemed unlikely to be a source of serious problems unless there was a material adverse shock affecting interest rates or income prospects. Moreover, the aggregate financial balance data suggested that the risk of a sharp change to consumption was less than might be thought on the basis of the aggregate borrowing figures alone. But that risk depended on the balance sheet position of the household sector, and that in turn required an assessment of disaggregated data, for example whether the most indebted households also held substantial assets, and how liquid those assets were. 12 The annual growth rate of bank lending to private non-financial corporations had recently increased, to over 5½% in November. And data from the major British banking groups suggested that the rate of decline of bank lending to manufacturing companies was moderating. These data, together with the decline in yields on corporate bonds, suggested an easing in corporate credit conditions which might to some extent have offset the rise in the cost of capital implied by the most recent falls in equity prices.

Demand and output

13 The National Accounts data released in December showed that UK GDP had grown by 0.9% in 2002 Q3, representing an upward revision of 0.1 percentage point from the original estimate. Taking account of revisions to earlier data, the estimated level of GDP in Q3 was around 0.4% above the level expected at the time of the November Inflation Report. However, various indicators suggested that output growth might have slowed in Q4: manufacturing output had fallen in October; and the December manufacturing surveys by the CBI and the Chartered Institute of Purchasing and Supply