Conflicting signals emerged yesterday about British consumers' spending and borrowing, raising questions about the prospects of higher interest rates.
The CBI's latest survey of retailers suggests that higher interest rates are indeed causing consumers to rein in spending. However, increases in rates may not have been having such an impact on borrowers.
Figures from the British Bankers' Association suggested that the number of people seeking credit is softening, but that those who are borrowing are still willing to push themselves deep into debt to try to keep up with still-rising property prices.
When compared with May 2006, house purchase approvals were down 4 per cent by number but up 9 per cent by value; remortgaging approvals were up 13 per cent by number and 25 per cent by value; while approvals for equity withdrawal were down 3 per cent by number but 6 per cent higher by value. City economists were divided on their interpretation of the figures.
Howard Archer, the chief UK economist at Global Insight, suggested that the statistics "broadly add to the evidence that housing market activity is gradually coming off the boil". Others took the view that the numbers demonstrated unexpected strength in the housing market, with a heightened chance of interest rates increasing.
BNP Paribas described them as "on the strong side of normal". Most are waiting for the more comprehensive Bank of England data on household borrowing to be published tomorrow.
The CBI survey was less equivocal, and found that retail sales have grown more slowly than expected for a second month running and at a rate significantly below April's three-year high.
The business group's latest distributive trades' survey, covering the first half of June, showed that for 37 per cent of retailers year-on-year sales were up, while for 20 per cent they were down. This balance of plus 17 is in line with the long-term average, but is the lowest since November last year.
John Longworth, the chairman of the CBI's distributive trades panel and executive director at Asda, said: "Consumers are reining in their spending in response to higher borrowing costs. A slower housing market is making its impact felt, in particular on sales of consumer goods."
Even so, sales volumes were still considered above average for the time of year, and the three-monthly average, which smoothes out monthly peaks and troughs, remained buoyant at +31 per cent.
Nick Kounis, the senior economist at Fortis, said: "We think that higher interest rates will make their presence increasingly felt in the coming months, and the recent downward trend that is starting to be visible in this series may be a first sign of this. As such it may give the doves on the MPC the ammunition to argue against a move at the July meeting, but a July rate hike still looks more likely than not." The Bank of England's Monetary Police Committee meets on 5 July.Reuse content