Total lending to the private sector rose pounds 9.5bn last month, according to the Bank of England - the biggest increase since August and beating City forecasts of pounds 5.7bn. Recent rate rises have failed to deter households from taking out loans.
The data came as one economic consultancy warned interest rates would have to hit 8 per cent to dampen down the consumer boom.
High-street lenders advanced a total of pounds 11bn last month - the second highest figure for 1999 - according to the Council of Mortgage Lenders. Michael Coogan, CML director general, said: "The housing market remains stronger than might be expected for the time of year."
Bank mortgage loans rose pounds 1.588bn, well above the recent monthly average of pounds 1.4bn, according to the British Bankers Association. It said there was a strong rise in consumer credit, which rose pounds 674m - its strongest since March. "Increases in personal loans and overdrafts ... represent an element of pre-Christmas spending," said BBA director general Tim Sweeney. Gross loans for 1999 hit pounds 104bn in 1999 - the first time that the figure has exceeded the pounds 100bn mark - according to Barclays.
Sharda Dean, an economist at Schroders Investment Management, said: "It adds to the trend we have seen with higher earnings figures, which suggest a rate rise next year."
Richard Iley of ABN Amro said it added to concern over double-digit house price inflation. "While the housing market shows signs of moderation, it remains an upside risk to the economy," he said.
The strength of consumer demand and the labour market will force the Bank to hike rates to their highest level for a decade, says a report out today. The Centre of Economics and Business Research said consumer spending would be boosted over the next two years. "Higher rates will be the right policy for the long-term attainment of the [inflation] target and we see rates reaching a peak of 8 per cent by 2002 - the highest since autumn 1992, just after Black Wednesday," it said.
Separate figures showed the Government borrowed more than expected in November. The Public Sector Net Cash Requirement of pounds 2bn was more than double the forecast pounds 0.9bn and compared with a pounds 9bn surplus in October. But economists said the Chancellor would still exceed his own forecasts and said the stage was set for pre-election tax cuts or spending bursts.
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