They benefited from lower borrowing costs, which facilitated debt repayment and permitted some income to be directed to spending. But they did not show much appetite for new debt, except in some relatively small sectors of the overall household credit market. 7 Corporate finances have been in better shape than households’, but businesses also responded unenthusiastically to very low rates.
Private sector investment has been weak. 8 In fact, the strongest movements in credit to corporates have occurred over the past two years, during which we have gradually raised rates. Meanwhile, the output gap did narrow – but not because growth had picked up. Rather, it was because potential growth had slipped lower.