Consumer boom gives industry a boost

The housing market enjoyed a robust month in August, according to bank and building society lending figures yesterday. There were also signs that the consumer boom is starting to trickle down to industry, with the latest survey reporting a tentative improvement in orders.

The additional evidence of recovery will give Eddie George, Governor of the Bank of England, more ammunition in Monday's monetary meeting with Kenneth Clarke. The Bank has made plain its preference for higher interest rates to tame the spending boom, but City analysts expect the Chancellor to resist.

Mr Clarke's view found support in the absence of pressure on prices at the factory gate. According to the Confederation of British Industry's monthly survey, price expectations are flat and manufacturers have no plans to increase prices during the next four months.

Adair Turner, CBI director-general, said there was no need for a cut in interest rates or taxes. But he added: "Given that inflation is clearly under control, we see no need for immediate moves to raise rates either."

There was further evidence yesterday that the economy was in no need of a boost, as new mortgage lending by both high street banks and building societies increased again last month. Building societies' net advances increased to pounds 1.35bn, the highest level for four years, from pounds 1.23bn in July. The banks' lending rose to pounds 632m from pounds 612m, although this included the switch of lending by the National & Provincial into the banking sector following its takeover by Abbey National.

The Building Societies Association reported a dip in the number of loans approved, from 53,000 to 51,000 in August. But this remained 24 per cent higher than a year earlier.

Adrian Coles, the BSA's director-general, said: "These figures provide the clearest indication that the housing market is returning to health."

The banks' lending figures showed that other borrowing remained buoyant. Consumer credit rose by pounds 210m last month.

In addition, commercial borrowing picked up. There were noticeable increases in lending to manufacturing industry and to the hotels and catering sector by the big banks.

The increase in lending was reflected in a pick-up in the growth of M4, the broad money measure, back above the top of the 3-9 per cent monitoring range. Its dip to 8.9 per cent in July helped ease City concerns about future inflationary pressure, but it climbed back to 9.1 per cent in August.

The recovery in demand has begun to filter through to manufacturing, according to the latest industrial trends survey from the Confederation of British Industry. The survey, published this morning, reports that orders remain weak this month, but are at their least weak since last November. Sudhir Junankar, a CBI economist, said: "The improvement in demand seen over the past few months is encouraging, although manufacturers continue to be hampered by weak exports."

The balance of companies reporting higher rather than lower orders improved to -9 per cent from -10 per cent in August. The export order balance climbed from -14 per cent to -11 per cent.