Consumer borrowing soars to nearly £1,000bn

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The Independent Online

Uk consumers continued to shrug off the effects of rising interest rates in April, as individual lending increased to record levels yet again, taking the total amount of outstanding loans and mortgages to almost £1,000bn.

Uk consumers continued to shrug off the effects of rising interest rates in April, as individual lending increased to record levels yet again, taking the total amount of outstanding loans and mortgages to almost £1,000bn.

Figures from the Bank of England published yesterday revealed total lending to have increased by £11.1bn or 1.1 per cent in April, of which secured lending accounted for £9.8bn.

The figures will be yet another worry for the Bank of England's Monetary Policy Committee, which has raised rates three times since November, but to seemingly little effect in the consumer debt market.

Speculation is now increasing that the committee will raise rates for a fourth time - to 4.5 per cent - as soon as next week's meeting, and at the latest in July. Economists are divided on the issue with about half predicting another 0.25 per cent increase this month.

John Butler, the chief economist at HSBC, said: "Although there is some evidence... of households switching from unsecured to secured borrowing, consumers' overall appetite for credit continues to rise at a rapid pace.

"Consumers are still hungry for credit. Although the data is only for April and hence does not capture the May rate rise, it shows little evidence as yet that households have significantly adjusted their behaviour despite the rise, and expectation of further rises, in interest rates." The latest data comes within days of confirmation of a continued surge in UK house prices, with the Nationwide Building Society announcing a month-on-month increase of 1.9 per cent in May, taking annual house price inflation to 19.5 per cent. House prices have already grown 9 per cent this year, compared with 5.8 per cent in the same period last year. Nationwide predicts total house price growth for 2004 of 15 per cent.

Matthew Taylor, the chairman of the Liberal Democrats and the party's former financial spokesman, said: "Debt is running out of control in part because of bad practice by lenders who should be reigned in. They are basically selling easy money to people who can't afford to pay it back.

"We've constantly been highlighting these problems to the Chancellor, but there has been no action taken."

Mr Taylor said the increasing amount of 0 per cent credit card deals and the willingness of lenders to advance increasingly high salary multiples, without carrying out sufficient credit checks, were only two examples of bad practice in the lending industry. He said many people were unaware of the true cost of debt.

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