Bank chief reassures on economy as demand for credit weakens

UK consumers borrowed less money in November than at any time since August 2001, fuelling fears that a spending slowdown had started even before the key Christmas selling season.

However, Sir Edward George, the Governor of the Bank of England, maintained that the UK economy remained relatively healthy. He said he expected Britain to grow "close to trend" in 2003 and that he did not expect "a sharp change in either direction" on interest rates.

He added that house price inflation would moderate but that he did not expect a crash. "What we are anticipating is that the rate of increase in house prices will moderate quite sharply.... We are not expecting a fall in house prices. Not a generalised fall over the next year or two anyway," he said.

The comments came as new figures from the Bank of England showed that consumer credit grew by a seasonally adjusted £1.4bn, or 0.9 per cent in November. This was lower than October's rise by £0.4bn.

Secured lending grew by £7.4bn, or 1.1 per cent in November. This was £0.6bn lower than the rise in October. The level of mortgage lending was 13 per cent higher than a year earlier, the fastest rate since records began in April 1993. There were also 121,000 new mortgage approvals in November, slower than the 124,000 seen in October but still well above the average of 118,000 in the previous three months.

"Overall, these figures provide another tentative hint that consumers may finally be tightening their belts a little," said Jonathan Loynes, at consultancy Capital Economics.

John Butler, an economist at HSBC, agreed: "It does seem to provide some tentative evidence that consumers' appetite for debt is easing, albeit from very high levels. Moreover, it supports other recent figures suggesting retail spending was modest pre-Christmas but that the housing market remains buoyant."

On Thursday the CBI reported that pre-Christmas retail sales had not grown year-on-year for the first time in a decade, while last week a report from GfK showed consumer confidence tumbling.

Anecdotal evidence from retailers and shopping centres suggests, however, that spending surged just before Christmas and has remained strong in the early days of the winter sales.

Mr Loynes said that while the credit numbers did not reveal anything about consumer spending in November, which was modest, they did support the message that consumers were becoming more wary.

Economists said the latest figures were unlikely to have much influence on next week's interest rate decision, where the Bank's Monetary Policy Committee is expected to leave rates on hold at 4 per cent.

Mr Loynes at Capital Economics, said: "They will be pleased to see some slowdown in consumer activity but, with the rest of the economy still very fragile, it won't want it to slow too fast."

A number of major retailers are due to release their Christmas trading statements next week, providing fresh evidence on the strength of consumer spending. As well as results from Dixons and J Sainsbury there will be updates from Next, House of Fraser, Signet and Selfridges. Marks & Spencer is due to update the market on 15 January.

Sir Edward, who retires later this year, also called for a more balanced debate on whether Britain should join the European single currency.

"I think the debate on the euro is polarised to the extent where the people against only talk about the disadvantages, people in favour only talk about the advantages," he said.