Consumer boom takes credit card spending to pounds 4bn

Britons have been reacquainting themselves with their flexible friends. Thanks to the gathering consumer boom, spending on plastic is growing at a record pace, with much of the increase being splurged on entertainment and hotels.

Credit card spending was pounds 4.1bn last month, up nearly a quarter compared with a year earlier, and debit card spending reached pounds 3.3bn, a 44 per cent rise, according to statistics from the Credit Card Research Group, a trade body for the country's main card issuers. Separate figures published by the high street banks yesterday showed that personal loans, including credit card borrowing, were nearly two-thirds higher last month than a year earlier, at pounds 409m compared with pounds 250m last September.

There is every sign, too, that the spending spree is in its infancy. Household purchasing power adjusted for taxes and inflation is growing at its fastest pace for four years. By next March the flavour of the late 1980s might well have returned, when high earners in the City of London receive their bonuses after a bumper year in 1996.

According to the CCRG, one of the biggest rises in both credit and debit in the year to September was spending on entertainment, which includes restaurants, cinemas, theatres, amusement parks and bowling alleys. Use of credit was up 31 per cent at pounds 314m during the month, and debit spending climbed 60 per cent to pounds 117m.

Other figures showed strong mortgage lending and a surge in broad money growth last month.

If key figures next week, including GDP for the third quarter of the year, are equally strong, the Bank of England will have an impressive arsenal of evidence in favour of higher interest rates. But analysts still expect the Chancellor, who yesterday held his pre-Budget away-day at country house Dorneywood with ministers and officials, to try to leave rates unchanged before the election.

New mortgage lending by the high street banks and building societies was 17 per cent higher than a year earlier in September, at pounds 1.5bn, although both reported a dip during the month. The banks lost market share to the building societies, accounting for only pounds 417m of the total.

Net advances made by the building societies were a remarkable 81 per cent higher than the previous September. A further signal of the new buoyancy of the housing market was an increase in the number of loans approved to 52,000, nearly a third higher than the same month last year.

"This should ensure that house prices continue to rise over the winter months," said Jonathan Loynes, an economist at HSBC Markets.

The banks' figures showed that the corporate sector repaid loans in September. This was reflected in a weaker-than-expected economy-wide total for lending, only pounds 3.5bn compared with expectations of a pounds 5bn-plus increase.

Some economists took this as a sign that the recovery was patchy. But Michael Saunders at investment bank Salomons said the drop in corporate borrowing was probably due to the tailing off of takeover activity and the fact that manufacturers were borrowing less to finance excess stocks now these had been run down.

"All of these figures are reasonably buoyant," he said. This buoyancy was mirrored by a 0.8 per cent jump in M4, the broad money measure, taking its 12-month growth rate to 9.8 per cent from 9.5 per cent in August.

The FTSE 100 index closed at a record 4,053.1 yesterday, up 11 points.