Surge in borrowing prompts boom fears

Fresh signs yesterday of a bubbling housing market and a surge in borrowing did nothing to ease post-Budget concerns that the economy is heading for an unsustainable boom.

House price inflation has returned to its highest since the autumn of 1989, while net mortgage lending in October was nearly double its level a year earlier, according to new figures. New consumer credit dipped from its level the previous month but continued to grow at a rate well into double digits.

"This is more evidence that in cutting taxes, and hinting that interest rate rises are likely to be modest, the Chancellor is fuelling a consumer boom that risks running out of control," said Adam Cole, an economist at the brokers James Capel. Analysts think Mr Clarke will be forced to increase base rates again before the election.

Nationwide Building Society reported a 1.3 per cent jump in house prices during November, taking their year-on-year rate of inflation to 8.8 per cent. The Halifax is expected to report on Monday a slightly smaller monthly rise and an annual inflation rate of around 7 per cent.

Nationwide said house prices had returned to their level at the beginning of the 1990s, although they remained more than one-tenth below their 1989 peak. Price pressures remained concentrated in the South-east.

Separate figures from the Bank of England showed that total net mortgage lending amounted to pounds 1.8bn in October, up from pounds 1.4bn the previous month and nearly double its level a year earlier. In addition, the number of new loan commitments jumped by 7,000 to 101,000, the highest monthly level since February 1990.

Mortgage commitments, now 26 per cent higher than a year earlier, are considered a good indicator of future housing market trends because they measure the number of people with a loan agreed but unable to find a house to buy.

There was a little comfort for those afraid of a roaring consumer boom in a smaller-than-expected increase in new consumer credit in October. The rise was "only" pounds 856m, compared to just over pounds 1bn the previous month.

However, the annual growth of consumer credit was 16 per cent, up from around 14 per cent during the summer. Total personal sector borrowing grew by 6.1 per cent in the year to October, its first foray above 6 per cent for more than a year.

"These figures will fuel financial market expectations of an increase in interest rates," said Gerard Lyons, chief economist at DKB.

The pound soared on the foreign exchanges again yesterday, gaining more than a pfennig against the German mark to reach DM2.5865, its highest level for three years.