Home loans surge follows interest rate cuts

THE PACE of recovery in the UK housing market was stepped up last month, according to the banks, with mortgage lending surging by almost 40 per cent.

Data published yesterday by the British Bankers' Association (BBA) revealed that gross mortgage lending soared to pounds 4.97bn in March, pounds 1.36bn higher than in February and 31 per cent higher than in March 1998.

Net lending rose by more than pounds 1bn for the fifth successive month, and there was a near doubling in the number of approvals.

Tim Sweeney at the BBA said: "In the current interest rate environment, the strong approvals data suggest that the upturn could be sustained in the months ahead."

The Bank of England's recent string of aggressive interest rate cuts has prompted sharp falls in many mortgage rates and sparked a recovery in the housing market.

There have been marked increases in house prices in most of the country, especially in Greater London, and analysts are bullish about market prospects.

Neil Parker, economist at Royal Bank of Scotland, said: "It's pretty clear that the scale of the rate cuts has given a second wind to the housing market. I think we're going to see quite significant gains in prices this year."

Meanwhile, the latest quarterly forecast by the National Institute of Economic and Social Research (NIESR) will add to the growing economic optimism when it is published later today.

The NIESR has upped its forecast for growth this year from 1 per cent to 1.25 per cent - in line with the Government's 1 to 1.5 per cent forecast.

It argues that the recent recovery in confidence should help the economy achieve a soft landing.

The pace of the UK recovery will accelerate during the course of the year, according to the NIESR, and growth in 2000 now looks set to approach 2.5 per cent.

The flipside of the pick-up in growth is a rise in inflation, which is forecast to overshoot the Government's 2.5 per cent target during next year. The scope for further interest rate cuts is limited, the NIESR says.

Like other commentators, it warns that the UK will increasingly become a "two speed" economy, with the service sector booming, but manufacturing mired in recession.