Two-tier economy opens as industry slows

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The Independent Online
A TWO-TIER economy is opening up in the UK between a booming consumer sector and a moribund business sector, according to figures released yesterday.

Lending by the major banks rose by pounds 1.818bn in July, much lower than the pounds 6.613bn rise seen in June.

While lending to individuals, which includes mortgage lending, rose to a record pounds 2bn, growth in loans to industry was slow.

Time Sweeney, the director-general of the British Bankers' Association, said: "These figures show the two-tier nature of the major banks' lending, with buoyant personal demand contrasting with little growth in lending to companies."

He said a small increase to industry was more than offset by pounds 1.536bn of repayments from other financial corporations, adding that the over all figure was "weak".

Meanwhile the money supply, as measured on its broadest basis, fell by an unexpected 0.4 per cent last month, driving the annual growth rate to its lowest level in six years.

The Bank of England said that following June's 0.6 per cent dip, it was the first time there had been two consecutive monthly falls since records began in 1992.

Economists had expected M4, which includes bank deposits as well as notes and coins, to rise 0.9 per cent.

The data will be seen as backing up the Monetary Policy's Committee's caution in voting unanimously for rates to stay on hold two weeks ago. However, the Bank has made it clear that it does not give great weight to M4.

Richard Iley, an economist with ABN-Amro, said yesterday: "The spectacular collapse in M4 growth so far this year seems primarily to be the result of sharply slower growth in the deposits of non-bank financial intermediaries, such as insurance companies, pension funds and unit trusts."

David Coleman of CIBC, added: "The only safe conclusion is that broad money data should be treated with caution for the time being."