Slow rise in consumer credit

Manufacturing industry continues to grow strongly, the housing market continues to pick up, but consumer credit is weaker than expected, according to figures released yesterday. The data give the Chancellor of the Exchequer more reason to keep a rise in interest rates on hold when he meets Eddie George, the Governor of the Bank of England, this week.

Output and orders in manufacturing industry, measured by the Purchasing Managers Index (PMI), grew at the same pace in February as they did the month before. Consumer credit rose by pounds 853m in January, but the increase was lower than many analysts had expected.

M0, a measure of the amount of money circulating in the economy, grew by only 0.2 per cent in February, less than in previous months, pushing the annual rate down from 7.3 per cent in the year to January to 6.5 per cent in the year to February. "These results are better than expected," said Simon Briscoe of Nikko Europe. "It was a little piece of good news for the Chancellor."

David Walton of Goldman Sachs said the results were surprising: "We would have expected to see weak manufacturing and strong consumer demand. These figures seem to indicate the opposite."

Kenneth Clarke, the Chancellor, is expected to keep interest rates steady when he meets the Governor on Wednesday, despite Mr George's persistent pressure for a small rate rise. Speaking to the annual dinner of the British Retail Consortium last night, Mr Clarke said: "I am reassured by the exceptional lack of inflationary pressures in the pipeline."

The Purchasing Managers Index provided support for the Chancellor's position, as it showed the price index falling from 43.1 in January to 39.7 in February. Analysts said the fall reflected lower import prices thanks to sterling's depreciation.

The main PMI remained roughly steady at 53.5 in February compared with 53.9 in January, revealing that the manufacturing sector continues to expand. According to the PMI report: "Producers of investment goods were the only companies to see a strengthening of export demand in February."

Meanwhile, domestic consumer credit grew steadily in January, although not as fast as analysts had predicted. Consumer credit rose by 16.7 per cent since last January, only marginally higher than last month's figure of 16.6 per cent growth in the year to December.

Within the overall figures, credit card spending was its lowest for a year, at pounds 88m, however, mortgage borrowing grew strongly. The number of net new commitments to lend mortgages rose by 97,000 in January, up 18 per cent on a year ago.