Lending rise boosts hopes on economy: Surge in bank loans and mortgages but consumers repay net debt

THE BIGGEST rise in bank lending for four years and a surge in building society mortgage advances yesterday added to the evidence that fear of April's tax increases has left the economy largely unscathed.

Britain's main banks lent pounds 3.05bn to private sector borrowers last month, up from pounds 935m in February, the British Bankers' Association said yesterday. But the trend in lending, comparing the past three months with the previous three, was relatively flat.

Manufacturers were net borrowers after two months of debt repayment, perhaps to pay for working capital after recent rises in output. But much of the rise in lending went to financial institutions, especially building societies and securities dealers. This is an erratic series and appears to bear little relation to overall business confidence.

Consumers repaid a net pounds 55m of debt, although they took out an extra pounds 47m in the month on credit cards. Don Smith, economist at Midland Global Markets, said this reinforced his suspicions about the accuracy of the big rise in retail sales reported by the Central Statistical Office on Thursday.

Manufacturers raised their borrowing by pounds 386m in the month, with motor manufacturers and food, drink and tobacco companies leading the way. Property, construction, hotels and catering companies all repaid more debt than they took on.

There was mixed news on mortgage lending, with a leap in building society advances flattered by market share gains from banks. But Adrian Coles, director-general of the Building Societies Association, said the figures provided further evidence of a recovery in the labour market.

Building society mortgage lending totalled pounds 3.1bn in March, up from pounds 2.2bn in the previous month, according to the BSA. Net new mortgage commitments also rose, from pounds 2.9bn in February to pounds 3.7bn in March, the highest figure since October 1991.

Mr Coles said the mortgage figures would have been boosted by the early date of Easter, but it was clear that interest in moving house has been rekindled. The revival in the housing market would improve consumer confidence, helping to offset the impact of the tax increases.

The rise in mortgage commitments was much higher than the City expected and 21 per cent up on the same month last year. 'This probably continues to reflect market share gains by building societies, but also points to stronger housing market activity,' said Adrian Cooper, economist at James Capel.

Savers withdrew pounds 653m more from building society accounts than they deposited in March, up from pounds 404m the previous month and only slightly below the record pounds 673m withdrawal when funds were used to pay for TSB shares in September 1986. But the BSA said savers might have been withdrawing money to prepay their fuel bills.

The Bank of England said lending by banks and building societies rose by pounds 3.3bn in March. The broad money supply measure M4 - cash plus bank and building society accounts - rose by 5.9 per cent in the year to March, in the middle of the Government's 3-6 per cent monitoring range.

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