Interest rate decision in the balance

An increase in mortgage borrowing offset a dip in other consumer loans in June, leaving personal borrowing growing at a vigorous annual rate, according to the last official figures before this week's interest-rate decision by the Monetary Policy Committee. Economists say the vote on Thursday is likely to be finely balanced.

An increase in mortgage borrowing offset a dip in other consumer loans in June, leaving personal borrowing growing at a vigorous annual rate, according to the last official figures before this week's interest-rate decision by the Monetary Policy Committee. Economists say the vote on Thursday is likely to be finely balanced.

Two surveys yesterday pointed to declining consumer confidence. The monthly survey of retailers by the Confederation of British Industry, due tomorrow, is expected to provide the MPC doves with more ammunition against a rate rise.

However, the Bank of England's inflation forecast, to be published next week, is likely to reflect the impact of stronger-than-expected growth. GDP grew at an annualised rate of 3.7 per cent in the latest quarter.

There was nothing in yesterday's lending figures to indicate a decisive consumer slowdown. Although the headline rise in consumer credit in June was just £967m, down from £1.5bn in May, mortgage borrowing rebounded from £3.5bn in May to £4bn, taking annual growth in total personal borrowing to 9.8 per cent.

Despite signs that the housing market is cooling, the number of new mortgage approvals in June was 102,000, little changed from the average of the previous three months. July house price figures from Nationwide and Halifax are due this week.

James Carrick, a UK economist at ABN Amro, said: "Given that last month's MPC minutes showed a concern about consumer borrowing, there will be nothing here to ease those fears."

Consumer spending could be fuelled by windfall payments from Scottish Widows, CGU Insurance said yesterday. The £5.8bn payout reaches investors' banks in the second half of August, it pointed out.

However, these views were at odds with two other surveys of consumer confidence yesterday. Business Strategies, an economic consultancy, said confidence dipped in most regions of the UK in the second quarter. Melanie Lansbury, managing economist, said: "This has caused people to shy away from the high street."

An opinion survey by GfK showed a decline in overall consumer confidence in July, matching the weakest reading since January 1999. Geoffrey Dicks, an economist at Royal Bank of Scotland, said the dip was surprising. "Consumers remain confident about their own finances and are willing to make major purchases, yet have become very gloomy about the overall state of the economy."

He said this might reflect the sharp rise in consumers' concern about inflation.