Surprise fall in bank borrowing and mortgages: April tax increases not seen as a factor

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The Independent Online
BORROWING from banks and building societies was unexpectedly weak last month, but City economists said it was too early to conclude that the tax increases had damaged consumer spending or the housing market.

The Building Societies' Association reported a sharp fall in net new mortgage commitments - offers accepted by borrowers - from pounds 3.7bn in March to pounds 3.1bn.

'The April figures provide little, if any, evidence of a slowdown in housing market activity as a result of last month's mortgage tax relief changes and tax increases,' said Adrian Coles, director-general of the BSA. He added that the fall in commitments last month mirrored a sharp rise in March, but the two months taken together were 10 per cent up on the same period a year earlier.

Lending by banks and building societies rose pounds 500m last month, well down on the pounds 3bn rise in March and the pounds 2bn expected by the financial markets, said the Bank of England. The British Bankers' Association reported a similar picture, with lending from the big banks down by pounds 911m after a rise of more than pounds 3bn in March.

The BBA said the lending figures could have been distorted by the early Easter, which might have brought forward spending into March at the expense of April. A similar effect is thought to have distorted the retail sales figures published on Thursday, for which the Central Statistical Office made a one-off adjustment.

Consumer borrowing slowed in April while lending to manufacturers was down by pounds 254m.

Ian Shepherdson, of HSBC Greenwell, said April's fall in mortgage commitments might have been a natural result of people rushing in March to get cheap fixed-rate mortgages before they were withdrawn.

(Graph omitted)