Mortgages and credit cards push lending to an eight-year high

Consumer borrowing soared to an eight-year high in July, buoyed by credit card purchases and mortgage lending, and all but eliminating any chance that the Bank of England will cut interest rates when it meets next week.

Total net lending, including home loans, rose to £6.1bn from £5.7bn in June. It was the biggest monthly increase since the figures were revamped in April 1993. Consumer credit, which includes bank loans and credit card debt, jumped by £1.7bn in July, up from £1.4bn in June, and well above forecasts of a £1.3bn rise. Proof that the housing market continues to be strong was shown by home loans rising by £4.5bn, the highest figure since the current measurement system was introduced in 1993.

Jeremy Hawkins, the chief UK economist at Bank of America, said: "If the UK economy is slowing it seems that no-one bothered to tell the consumer. None of this will sit well at next week's Bank of England meeting and these data must significantly dent hopes of rates coming down then."

The Bank's key lending rate is 5 per cent, one percentage point below the peak last year. The reductions have helped extend a nine-year economic expansion, which has seen unemployment dip to 3.2 per cent.

The number of approvals for house purchases also increased, rising to 111,000 – the highest level since January of 1999. With demand for mortgages remaining strong, house prices will remain buoyant and could further underpin consumer spending. The gross value of new home loans made in July surged to a record £14.88bn from a revised £14bn in June. That was the highest level since October 1997.

Sterling hit fresh three-week highs against the euro after the data were released, climbing to 62.63p. Gilts, however, drifted slightly lower as expectations of further interest rate cuts dimmed. The Bank of England has said it expects consumer demand to cool in the second half of the year as slower economic growth leads to higher unemployment.