Money supply growth adds to recovery signals: Company failures fall to lowest level since December 1989

NEW SIGNS that the recovery is gaining ground emerged yesterday after a fresh expansion of narrow money supply, a rise in finance house lending and leasing and a fall in company failures to the lowest level in more than three years.

But these indications coincided with a further downturn in Germany, the UK's main export market, where industrial orders dropped and unemployment rose. Economic weakness, meanwhile, prompted the Bank of France to ease a key interest rate from 8.25 to 8 per cent.

British narrow money supply grew by 4.8 per cent in the year to April, the third successive month in which M0 breached its 0-4 per cent monitoring range.

The latest monthly expansion of 0.4 per cent was slightly weaker than expected, suggesting that spending in the high street, although still firm, may be easing slightly.

The Treasury said that despite persistent excess growth of M0, chiefly cash in circulation, other indicators of inflation pressures remained weak.

Further confirmation that the housing market has picked up also emerged. The British Bankers' Association said leading banks made gross mortgage loans of pounds 4.137bn in the first quarter, 14 per cent up on levels in the previous quarter and 15 per cent higher than the first quarter of 1992. The BBA said the rise reflected improving sentiment and an expansion of the banks' market share owing to the popularity of fixed-rate mortgages.

In another pointer to broadening recovery, company failures last month fell to their lowest since December 1989, according to the accountants Touche Ross. The 255 receivership and administration appointments compared with a recent monthly average of about 400.

Although one month's figures may be a statistical quirk, there was little doubt that the underlying trend was continuing, Touche said. 'The only conclusions one can draw from this are either that the underlying health of British business is better than might be anticipated or that the clearing banks are continuing to be fully supportive of those of their customers that have suffered most from the ravages of recession.'

The Finance and Leasing Association, whose members finance more than a quarter of all fixed investment and more than 80 per cent of credit outside bank and building society loans, reported a 5 per cent increase to pounds 5.89bn in total leasing and lending in the year to the first quarter.

In stark contrast, industrial orders in western Germany dropped by 3 per cent in March, far steeper than expected. West German unemployment rose to 2.21 million in April from 2.17 million in March before seasonal adjustment. But in eastern Germany the total fell to 1.12 million from 1.14 million.