Lending surge eases slowdown fears

LENDING BY banks and building societies surged last month, beating expectations of a slowdown and indicating a recovery in the consumer economy.

Total loans to the private sector rose by pounds 8.4bn or 0.9 per cent in April from pounds 6.7bn in the previous month, the Bank of England said. Analysts had pencilled in a modest pounds 5bn rise in lending.

Mortgage lending also increased, confirming independent forecasts that the housing market is poised for recovery.

The strong data came a day after a European Commission survey showed that consumer confidence has hit its highest level since May 1998. Analysts said the data showed April's retail sales figures, which suffered an unexpected fall, were an "aberration" and had been distorted by the timing of Easter.

A Deutsche Bank analyst said: "This is another reason why the Bank should not cut rates next month. The figures are good news for economic growth in the second half of the year."

But Richard Iley of ABN Amro said a 0.25 percentage point rate cut was still on the cards as the money figures would do little to counter the pound's strength and signs of loosening in the labour market.

Home loans by the major banks rose by pounds 1.137bn, its sixth consecutive monthly rise in excess of pounds 1bn, the British Bankers' Association said. Total lending by the big banks to the private sector were up by pounds 4.243bn, slightly up from March's figure and well ahead of the underlying monthly trend of pounds 3.017bn. Figures from the Building Societies Association showed its members' mortgage lending rose pounds 2.10bn in April, down from pounds 2.296bn in March.

The picture is confused by the some societies conversion into banks. Mortgage lending by BSA and BBA members was pounds 3.241bn compared with pounds 2.558bn a year ago. Tim Sweeney, BBA director general, said: "April saw the sixth consecutive monthly rise above pounds 1bn in the major banks' mortgage lending and therefore a continuation of the trend."

Adrian Coles, BSA director general, said: "For the second month running the figures reveal a healthy housing market. The recent upturn is likely to be a sustained rather than a seasonal trend."

Growth in the broad measure of the money supply accelerated to an annual 7.4 per cent in April from 6.9 per cent in March and a forecast of 6.6 per cent.

Lending to the industrial and commercial sectors also rose. The main gains were for real estate companies (pounds 368m), transport and communications (pounds 140m) and hotels and restaurants (pounds 112m).

n Economic activity will improve later this year, driven by a recovery in the consumer sector, according to a report. The NTC Consumer Industries' Indicator rose for the sixth month in April. NTC said movement in the index was reflected in economic activity 11 months later.