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Strong lending heralds end of five-year housing slump

The clearest evidence yet that the housing market is back on its feet and dusting off the last traces of a five-year slump was provided yesterday by a surge in mortgage lending last month.

Other lending, to consumers and industry, also remained buoyant in May. A separate survey by the Confederation of British Industry indicated that, even in manufacturing, there is a glimmer of light at the end of the tunnel.

High street banks and building societies reported a strong increase in net mortgage lending during the month - up 22 per cent to pounds 696m in the case of the banks and 26 per cent higher at pounds 1.1bn for the building societies.

Even more encouraging was a rise in the number of new loans approved by the building societies to 48,000, highest since November 1994. Figures for the number of housing transactions, due from the Inland Revenue today are also expected to show an increase in May.

Adrian Coles, director general of the Building Societies Association, said: "Many of the factors for recovery, such as improving employment and the reduction in taxation, have been in place for some time, and the lending figures are beginning to show the results of this."

The House Builders Federation brought more cheer, saying that 53 per cent of members surveyed had reported an increase in reservations for new homes. More than two-thirds were confident that sales would improve.

The pick-up in mortgage lending was accompanied by strong bank lending all round.

The British Bankers' Association said consumer lending remained above the recent monthly average at pounds 382m but well below April's record.

The company sector also borrowed significantly more in May after a repayment in April.

The total rise in borrowing last month was pounds 5.8bn compared with pounds 4.2bn in April.

Growth of the broad money supply measure M4, whose rapid expansion has caused concern at the Bank of England, remained at 10 per cent in May rather than falling as expected. Although manufacturing industry remains sluggish, according to the CBI's latest monthly survey, it reports hopeful signs in a new survey today.

Fewer firms than last month are expecting output to fall rather than rise. The negative balance has improved to minus 13 per cent from minus 17 per cent in May. Although export orders tumbled to their lowest since February 1994, domestic orders improved.

"The revival in the home market has helped to offset the fall in exports," said Sudhir Junankar of the CBI, although he pointed out that firms had become less optimistic about output in the next four months.

In addition, manufacturers have run down their excess stocks of finished goods this month. The balance reporting more than adequate stocks shrank from 25 per cent in May to 17 per cent in June.

Some economists now predict a rebound in manufacturing once stock levels are back to normal. "Manufacturing output is likely to recover quite quickly," Michael Saunders at Salomon Brothers said.