Credit demand surges as retail sales falter: 19% rise in housing starts is further evidence of recovery

CONSUMER demand for credit rose pounds 443m in December, the biggest monthly increase in four months and in contrast to a small fall in retail sales during the month.

The steep monthly rise in net lending was largely driven by a pounds 398m surge in lending by finance houses, the highest figure in five years. The conflicting messages of yesterday's statistics and recent data for December retail sales reflect the fact that finance house lending includes credit agreements for cars. Retail sales figures do not.

In the latest three months, a better guide to the underlying trend, demand for credit rose by pounds 1.05bn, up from pounds 919m in the three months to September and the highest quarterly total since the third quarter of 1988.

The figures suggest that consumer credit demand, excluding demand for mortgages, remains firmly on the upward path begun in autumn 1992. The pounds 1.96bn increase in the second half of 1993 was more than double that in the first half of the year and far above credit increases for all of 1992 and 1991.

Kevin Gardiner, UK economist at Morgan Stanley, said: 'A similar, although slower, story is evident from the increase in mortgage demand. This is looking more and more like a typical UK recovery, with little evidence of a reformed consumer borrowing less.'

During the month, building society consumer loans, excluding mortgage lending, rose by a slight pounds 5m and bank credit card borrowing rose by pounds 40m, the best monthly performance since September.

On a broader measure of credit, which includes personal loans by high-street banks, credit fell back during the quarter. Total net lending on this basis was pounds 634m in the final quarter, down from pounds 714m in the third three months.

Further evidence of continued recovery emerged with a 19 per cent rise in housing starts last year. Provisional estimates by the Department of the Environment show that 186,400 dwellings were begun last year, a decisive increase over 156,000 in 1992 and the steepest since 1989, but still well below the average annual rise for much of the 1980s.

In the three months to December, construction on 48,700 dwellings began after adjustment for seasonal influences, compared with 37,600 a year earlier.

Starts rose 8 per cent and total completions increased 5 per cent. Starts and completions by local authorities, new towns and government departments remained at a low level.