Strong lending fuels rate fears

Economy: Surge to pounds 5.9bn prompts speculation of higher borrowing costs by the autumn

The spectre of higher interest rates was raised yesterday by new figures showing far stronger than expected lending and monetary growth last month. Michael Dicks, an economist at investment bank Lehman Brothers, said: "This is another plank in the argument for interest rates to go up sooner rather than later."

Financial markets expect the cost of borrowing to start rising by the autumn, a timetable that could be embarrassing for the Government.

Total lending by banks and building societies amounted to pounds 5.9bn last month, with the big banks reporting a further rise in loans to industry though mortgage lending remained flat.

The British Bankers' Association said borrowing by manufacturing industry at pounds 365m was the highest for a year. There was also record demand for pounds 1.4bn of funds by leasing companies.

Martin Hall, director general of the Finance and Leasing Association, said this was consistent with members' reports of a strong pick-up in investment demand, particularly for inward investment and infrastructure projects.

Growth of the broad money measure, M4, remained in double digits at 10.1 per cent compared with 10.2 per cent in February. It has been running above the Government's 3-9 per cent target range for the past five months.

Eddie George, Governor of the Bank of England, warned the Chancellor of the Exchequer last month that rates might have to be raised again if monetary growth did not moderate. Mr Clarke described the strong growth in M4 as "puzzling".

Economists at the Bank are drafting next month's Inflation Report, which will pass a verdict on whether the Chancellor will meet his inflation target.

February's report concluded that this was "more likely than not" but most subsequent economic statistics have been buoyant.

The CBI's quarterly trends survey, due today, and retail sales figures on Thursday will be scrutinised for further evidence of a pick-up in the economy.

The launch of the gilts repo market on 1 January has increased the money supply and lending figures by several billion pounds a month.

Yet even excluding this effect the underlying rate of broad money growth has nearly doubled in less than a year.

Many economists think this is not a sign of direct inflationary pressure because the takeover boom is behind the surge. For example, about pounds 1.75bn of the March increase in borrowing was financing for Granada's takeover of Forte.

However, Professor Tim Congdon of Lombard Street research, a member of the Treasury's panel of "wise persons", said: "There are classic signals of monetary excesses."

Institutional investors flush with cash were bidding up shares, land and property prices, he said. Shares prices are at near-record levels, while land rose 29 per cent in value last year and has climbed since then according to estate agents Savills.

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Ashdown Group: Marketing Manager - B2B, Corporate - City, London

£45000 - £50000 per annum + benefits : Ashdown Group: A highly successful, glo...

Neil Pavier: Commercial Analyst

£50,000 - £55,000: Neil Pavier: Are you a professionally qualified commercial ...

Loren Hughes: Financial Accountant

£45,000 - £55,000: Loren Hughes: Are you looking for a new opportunity that wi...

Sheridan Maine: Finance Analyst

Circa £45,000-£50,000 + benefits: Sheridan Maine: Are you a newly qualified ac...

Day In a Page

Machine Gun America: The amusement park where teenagers go to shoot a huge range of automatic weapons

Machine Gun America

The amusement park where teenagers go to shoot a huge range of automatic weapons
The ethics of pet food: Why are we are so selective in how we show animals our love?

The ethics of pet food

Why are we are so selective in how we show animals our love?
11 best bedside tables

11 best bedside tables

It could be the first thing you see in the morning, so make it work for you. We find night stands, tables and cabinets to wake up to
No postcode? No vote

Floating voters

How living on a houseboat meant I didn't officially 'exist'
Louis Theroux's affable Englishman routine begins to wear thin

By Reason of Insanity

Louis Theroux's affable Englishman routine begins to wear thin
Power dressing is back – but no shoulderpads!

Power dressing is back

But banish all thoughts of Eighties shoulderpads
Spanish stone-age cave paintings 'under threat' after being re-opened to the public

Spanish stone-age cave paintings in Altamira 'under threat'

Caves were re-opened to the public
'I was the bookies’ favourite to be first to leave the Cabinet'

Vince Cable interview

'I was the bookies’ favourite to be first to leave the Cabinet'
Election 2015: How many of the Government's coalition agreement promises have been kept?

Promises, promises

But how many coalition agreement pledges have been kept?
The Gaza fisherman who built his own reef - and was shot dead there by an Israeli gunboat

The death of a Gaza fisherman

He built his own reef, and was fatally shot there by an Israeli gunboat
Saudi Arabia's airstrikes in Yemen are fuelling the Gulf's fire

Saudi airstrikes are fuelling the Gulf's fire

Arab intervention in Yemen risks entrenching Sunni-Shia divide and handing a victory to Isis, says Patrick Cockburn
Zayn Malik's departure from One Direction shows the perils of fame in the age of social media

The only direction Zayn could go

We wince at the anguish of One Direction's fans, but Malik's departure shows the perils of fame in the age of social media
Young Magician of the Year 2015: Meet the schoolgirl from Newcastle who has her heart set on being the competition's first female winner

Spells like teen spirit

A 16-year-old from Newcastle has set her heart on being the first female to win Young Magician of the Year. Jonathan Owen meets her
Jonathan Anderson: If fashion is a cycle, this young man knows just how to ride it

If fashion is a cycle, this young man knows just how to ride it

British designer Jonathan Anderson is putting his stamp on venerable house Loewe
Number plates scheme could provide a licence to offend in the land of the free

Licence to offend in the land of the free

Cash-strapped states have hit on a way of making money out of drivers that may be in collision with the First Amendment, says Rupert Cornwell