Company borrowing from banks surges

A jump in bank lending to companies last month has raised hopes that a recovery in investment might be under way. But other lending figures published yesterday confirmed that the mortgage market remains subdued, while consumer confidence has dropped again.

January saw the biggest increase in lending since September 1990, with a rise of £4.6bn. The year-on-year growth rate of lending by banks and building societies climbed to 5.3 per cent from 4.6 in December. One important reason was a significant rise in companies' borrowing. Loans to business by the big British banks were £1.2bn, after a small repayment in December, according to the British Bankers' Association. Lending to manu- facturing companies fell by £177m, but this was more than accounted for by a repayment of loans by the food, drink and tobacco industry - perhaps due to the impact of higher excise duties on their cash flow.

As in the two previous months, foreign banks seem to have increased their lending to British companies, although full statistics are not yet available.

In the past three months the trend for companies to repay debt has gone into reverse; they have stopped adding to their bank deposits. David Walton, an economist at Goldman Sachs, said: "It looks as though companies are starting to turn their thoughts towards investment."

The BBA also reported strong personal borrowing, of £901m in January compared with £758m the previous month. The rise was due to consumer credit rather than mortgage lending, which was nearly flat.

Figures released by the Building Societies Association confirmed the housing market's continuing weakness. Gross mortgage lending by the societies slipped between December and January, to £2.3bn. Net advances edged up from £623m to £696m, but new commitments - offers of loans - fell by nearly £500m to £2bn.

Adrian Coles, the BSA's director general, said building societies had not increased mortgage rates after the latest rise in base rates for fear of further depressing a stagnant market. Ian Shepherdson, an analyst at HSBC Markets, said: "The housing market is heading back into recession."

The strength of other consumer borrowing is puzzling in the light of the previously-reported fall in retail sales last month. Tim Sweeney, director general of the British Bankers' Association, said: "This suggests more that consumers are feeling the squeeze on disposable incomes than any sign of growing confidence."

But Adam Cole, an economist at James Capel, said it would be unwise to read too much into one month's fall in high street sales. "Personal borrowing, for anything other than house purchase, remains very strong."

Two separate surveys published yesterday presented a contrast to the buoyant picture painted by the overall lending figures. The monthly Gallup survey of consumer confidence reported that confidence has dipped, as it normally does after a base rate rise. Households have become gloomier about prospects for the economy.

The Federation of Small Businesses found great pessimism among respondents to its bi-monthly survey. More than 70 per cent said the recession was not over for them.

Bernard Juby of the FSB said: "We do not understand where evidence of overheating in the economy is coming from." There must be no further rises in interest rates if the Government did not want to discourage investment by job-creating small businesses.