Consumer borrowing slows down

By MICHAEL CLARKE
Updated: 05:14 EST, 31 March 2005

CONSUMER borrowing rose at its slowest rate for nearly a year in February, reflecting poor trading on the High Street. The Bank of England says UK consumers borrowed £1.7bn during the month, the lowest since April last year, and down from £2.4bn in January.

Borrowing on credit cards was particularly weak, falling by more than £200m to £828m for the month, suggesting that either the Government's warnings on the UK's debt mountain are getting through or talk of an interest rate rise is hitting consumer confidence.

The weak lending figures reflect a slowdown in High Street trading. The CBI said yesterday that retailers suffered their worst March trading period for 13 years, while the British Retail Consortium is expected to report gloomy figures next week.

The Bank said mortgage lending increased slightly, rising by £7.2bn from the previous month after an increase of £7.1bn in January, but the rise was smaller than the £7.3bn expected.

Mortgage approvals, an indicator of future demand, hit their highest since August 2004, totalling £22bn in February, suggesting confidence was returning to the housing market. The number of approvals also rose, to 85,000 in February from 82,000 the previous month, the highest since October.

Simon Rubinsohn, chief economist at Gerard, said the figures would delay the Bank of England's decision to raise interest rates. He had expected an increase in May but now believes the monetary policy committee won't increase rates until August.

He said: 'The MPC has said consumer spending is key to its decision on rates and these figures show borrowing is weak, which has been shown by figures from the High Street. The housing figures point to stabilisation rather than a recovery.'

Howard Archer, chief UK economist with Global Insight said: 'The slowdown in consumer credit in February is further evidence of consumers' current caution in borrowing and spending.'

James Carrick, economist with ABN Amro, said he doesn't expect consumer borrowing to recover in the short term He added: 'As we move into the summer, the housing market will become a bit more liquid. Demand will remain weak but sellers might be more inclined to cash in at lower prices.'

UK interest rates have been left on hold at 4.75% since August last year, following five rises from November 2003. The MPC is due to meet next week to decide on the next move for interest rates.