Surprise mortgage jump confounds expectations

Credit card debt and personal loans have surged

Mortgage approvals unexpectedly jumped in December and consumer credit surged ahead but business lending has slumped, the latest Bank of England figures have showed.

Its figures showed lenders made 70,837 loans for house purchases over the month, up nearly 1 per cent in November to the highest level since August and confounding economists’ expectations of a decline.

The latest rise in loans, bolstered by record-low borrowing costs and falling unemployment, follows another year of solid price growth. London prices hit an all-time high of £514,097 last month, with the biggest increases in the suburbs.  Although Nationwide signalled a slowdown in January, the Government and BoE have been looking increasingly at measures to curb potential overheating in areas such as buy-to-let lending.

The latest evidence of the UK’s shopping and houses-led recovery showed unsecured credit card debt, personal loans and overdrafts surging at the fastest annual rate since February 2006, up 8.6 per cent on a year earlier. 

Business lending painted a different story, however as credit fell £3.7bn in December, much worse than the average £300m decline seen over the previous six months. Loans to small and medium-sized business also fell.

There was brighter news for the UK’s manufacturers as they outshone European counterparts in the latest snapshot of the sector’s performance by financial data firm Markit. 

The Chartered Institute of Procurement & Supply’s activity index, where a score over 50 signals growth, hit a three-month high of 52.9 last month, up from 52.1 in December. 

The improvement came despite China-inspired un-certainty and, until recently, a much stronger pound. Cips’ chief executive David Noble said manufacturers have started the year “in a positive, if slightly reserved fashion”. 

On the Continent, trading was weak with slowing growth among German, Italian and Dutch firms and stagnation in France and Greece.