UK Aug mortgage lending cools, but still strong

LONDON - British mortgage lending and consumer credit rose by less than expected in August, suggesting a shock interest rate rise last month may have slightly cooled Britons’ appetite for borrowing, official data showed on Friday.

By (Reuters)

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Published: Fri 29 Sep 2006, 6:39 PM

Last updated: Sat 4 Apr 2015, 1:24 PM

Mortgage approvals -- seen by many as an indicator of the future health of the housing market -- also edged back a touch for the first time since April, but analysts say the housing market remains buoyant and forecast another rate rise this year.

The Bank of England said mortgage lending rose by 9.1 billion pounds in August, less than the 10 billion forecast by analysts and down from 9.3 billion in July.

Approvals for home loans came in slightly lower than expected at 119,000 in August from 120,000 in July.

“The fact mortgage approvals edged back for the first time in four months hints that August’s interest rate rise -- and the possibility of more hikes to come -- could be starting to have some dampening impact,” said Howard Archer, economist at Global Insight.

However, house market surveys for August have shown strong price rises, suggesting the rise in borrowing costs to 4.75 percent had not yet had an impact, and economists said Friday’s figures did not weaken the case for a further rate rise this year.

“Although the outturns came in a little lower than expectations, the numbers are still very firm and indicate that housing market activity remains buoyant,” said George Johns, an economist at Barclays Capital.

Awash with cash

The data showed consumer credit rose by 755 million pounds last month, below forecasts for a 900 million pound rise and July’s 1 billion pound increase.

“The implication is that, ahead of the hike, mortgage borrowing was plateauing at a little over nine billion pounds a month and the longstanding deceleration in credit demand was continuing,” said Geoffrey Dicks, an economist at RBS.

However, money supply growth remained buoyant, with the annual rate of M4 growth confirmed at 13.7 percent in August -- its highest rate since November 1990.

Policymakers have recently expressed concern that high levels of M4 growth suggest there may be too much cash in circulation, which could fuel inflation.

“The final estimate of M4 money supply growth should not be ignored,” said Alan Castle, an economist at BNP Paribas.

“Rapid money supply growth was another reason for hiking rates...this argument for hiking is still very much intact.”

There are also signs consumer confidence may be holding up in the wake of August’s hike with other data showing confidence rising in September from a 1-1/2 year low.

GfK NOP’s consumer confidence index rose as expected to -7 from -8 in August when people’s mood took a hit after the shock rate rise and a security alert at London’s Heathrow airport which stranded thousands of holidaymakers.

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