Slide in borrowing puts retail recovery in doubt

CONSUMER BORROWING slid to its lowest level for more than four years in May, according to figures that throw doubt on the strength of the retail recovery.

Consumer credit rose pounds 609m last month, almost half the pounds 1.1bn expected by the City, and a sharp fall on April's pounds 1.43bn, the Bank of England said. The fall in the headline figure was wholly due to higher repayments as gross lending rose by pounds 100m.

Credit-card lending halved in May while other forms of lending dipped to pounds 355m from pounds 881m. But economists said the underlying trend remained strong and pointed to figures showing that mortgage borrowing was still robust.

Mortgage lending rose pounds 2.7bn in May, a slightly smaller increase than April's pounds 3.1bn and March's pounds 3.2bn. The number of new approvals was almost unchanged at 96,000, compared with 100,000 in April.

Darshini David, an economist at HSBC, said the figures confirmed that the housing market "remained robust" and cautioned against reading too much into the "volatile" credit data.

"Retail sales figures have already revealed that high street lending was robust in May, while survey evidence confirms that sentiment is buoyant. Accordingly, a rebound in credit in the next few months is very likely." But Jeremy Hawkins of Bank of America said: "The data is soft enough to raise a few doubts about the strength of the recovery in retail sales and we continue to expect another cut in the base rate over the next few months."

The bullish view of the housing market was supported by data from Nationwide, the UK's largest building society, showing house price inflation accelerating in June.

Prices rose 7.5 per cent this month compared with 7.4 per cent in May and 7.1 per cent in April, on the back of a 0.8 per cent rise between May and June.

David Parry, Nationwide's divisional director of planning, said the UK market had remained buoyant while London was showing signs of "overheating".

"The strength of the London market is likely to ripple out to the rest of the South-east," he said. "So far, this effect has been relatively weak, but it is likely to gather pace with the South outperforming the rest of the country."

But he insisted worries about a housing boom were "misplaced", adding: "London prices are perhaps a little overheated, but the picture of the UK as a whole is much more benign and very far from boom conditions."

The price of the average house is pounds 70,789, the first time it has exceeded pounds 70,000 on the Nationwide index.

Investment column, page 22