Loans drop belies positive trend trend

Consumers borrowed less than expected last month, but this reflected the impact of the tax cuts which took effect in April. The continued rise in real disposable incomes after allowing for tax and inflation and the impact of cheaper mortgages have combined to leave consumers with more money in the bank to pay for the healthy increase in total spending.

Consumer credit rose by just pounds 636m in June, compared with pounds 691m in May and well below economists' forecasts which averaged pounds 785m.

The rise in consumer credit was just 0.9 per cent, compared with the 1.3 per cent leap in the volume of retail sales in June which took the annual increase to 3.3 per cent, and recent strong growth in credit card spending. Mortgage borrowing was also down slightly last month, but ahead of June 1995.

"The figures are a little bit weaker than anticipated, but the underlying trend is still consistent with a steady pace of spending, said Nick Stamenkovic, at DKB International. The figures are expected to encourage optimism in the economy and justify the Chancellor's decision to cut interest rates four times over the past nine months.

In another sign of the feel-good factor making its mark, investors put pounds 722m net into unit trusts during June, up from pounds 616m in May and retail investors alone invested a net pounds 421.3m, two thirds more than in May last year.

On Friday the Halifax is due to publish its monthly house prices index, which should confirm that June's small fall in prices was a glitch, after ten small increases which have sparked market optimism.