The steep increase in lending - more than double market expectations - lifted hopes that a tentative upturn in activity might be under way, in spite of worries that the figures were affected by special factors. But further uncertainty over the direction of the economy was cast by the diverging trends of broad and narrow money, and a decline in the expansion of net new mortgage commitments last month.
Notes and coins in circulation, the main component of narrow money supply, M0, expanded by 4.7 per cent in the latest week. This was the third week in a row that M0 grew above the Chancellor's 4 per cent ceiling. It suggests that M0 in February will again breach the ceiling when data for next week - the final week for the month - is released.
Despite the sharp increase in bank lending, broad money M4 was merely flat in January, standing 3.2 per cent above the level a year ago. This was down sharply from the 3.7 per cent annual growth rate in December and well below the Chancellor's 4-8 per cent monitoring range for M4, which comprises cash, bank and building society accounts.
The rise in bank and building society lending in January followed a repayment by borrowers of pounds 100m in December. Taking December and January together, the figures point to average lending growth of around pounds 2bn a month, up from the pounds 1.5bn monthly average of the previous six months.
The lending figures were adjusted for seasonal influences, like large corporation tax payments last month, which may have prompted companies to borrow more. But they may not have taken into account borrowing to finance a recent change in VAT payments, under which large firms now pay on a monthly basis.
In addition, the M4 figures were distorted by a delay in interest payments by building societies, which deflated the January figures and will inflate the February data.
The Building Societies Association meanwhile disclosed that net new commitments by mortgage lenders fell about 18 per cent to pounds 1.55bn in January, although the BSA said the decline reflected a normal seasonal fall.Reuse content