(click on the chart for a sharper image)
This chart pretty much tells the whole story of industrial development under new Labour. Manufacturing has been starved of investment funds, while real estate lending has exploded.
This chart is actually worse that it first appears. To understand why, we need to clarify the data definitions more precisely. It compares UK bank lending to both manufacturing and real estate firms. The data does not measure the total amount of bank lending to real estate.
This chart is based on lending by industry. The series marked "real estate" simply measures the "amounts outstanding of UK resident banks net lending to companies undertaking the development, buying, selling and renting of real estate". Furthermore, this series does not measure net lending to construction. Likewise, the manufacturing series measures "amounts outstanding of UK resident banks' net lending to manufacturers".
Back in 1997, manufacturing firms received more bank credit that real estate firms. In contrast, lending to real estate firms today is four times higher than that of manufacturing. In fact, banks have increased net lending to real estate firms by over 460 percent in ten years. What is even more shocking is that manufacturing firms actually have less net lending than back in the summer of 1997.
The more one digs into the lending activities of UK commercial banks, the more frightening it becomes. It is as if banks literally went mad and gave a loan to any application that had housing written on it. However, a firm from the manufacturing sector was treated like the proverbial leper.
(Data source: Bank of England, as described in post, the series codes are RPQTBSF, RPQTBSY)