Surge in mortgage lending dampens rate cut prospects

Mortgage lending took off in January, the Bank of England confirmed yesterday in figures that boosted expectations its Monetary Policy Committee would continue to resist calls for a cut in interest rates.

Mortgage lending rose by £9.16bn in January, a larger-than-expected rise and the biggest since April 2004, when house prices were growing at double-digit percentage rates. Approvals for home loans - those agreed but not yet made - were 122,000, matching December's 18-month high. They are seen as a guide to house prices six months out.

Separate figures showed the price of goods made in the UK rose at the sharpest pace for a year as manufacturers passed on the impact of their soaring cost bill. George Buckley, at Deutsche Bank, said: "The data points to interest rates on hold, at least in the near term."

The pound hit a three-week high against the dollar as traders pulled back from bets that the Bank of England was poised to cut rates after a slew of downbeat consumer data on Tuesday.

Charles Bean, the Bank's chief economist, said a housing market recovery could boost consumer spending. "That could then pose an upside risk to inflation," he told the Leicester Mercury. "Any pick-up in the housing market is something that will underline consumer spending going forward."

Activity at UK factories slowed while their costs and prices soared to their highest levels for a year last month, according to a lacklustre survey that contrasted with an upbeat performance in the eurozone.

A snapshot survey of 600 factory managers showed a slowdown in new orders, mainly due to flat export sales, dragged the headline index of activity and output. But City analysts focused on a worrying rise in the prices of goods leaving the factory gates, which they said was a sign that manufacturers were determined to pass on the impact of their soaring cost bill.

Prices charged hit their highest level for a year, while the input costs saw a sharp acceleration in manufacturers' costs to a 13-month high.

Geoffrey Dicks, at Royal Bank of Scotland, said: "The survey shows the wrong mix - with activity indicators rising at a modest rate while the inflation readings are at their highest for a year."

The Chartered Institute of Purchasing and Supply said its headline index of activity slipped to 51.7 last month from January's 51.8, below forecasts of a reading of 52 on a scale where a number more than 50 denotes growth.

An equivalent survey of eurozone manufacturing showed the sector growing at its fastest pace in 19 months.