Mortgage lending rise triples forecast

The government has announced a loans scheme to help small and medium-sized enterprises.

LONDON (Reuters) - Mortgage lending rose more than three times as fast as expected in December along with a surprise increase in home loan approvals, official data showed on Friday.

Figures from the Bank of England showed net mortgage lending rose by 1.903 billion pounds in December 2008, the biggest increase since July of that year and more than three times analysts' forecasts for a rise of 600 million.

The number of home loan approvals rose to 31,000 in December from a record low of 27,000 the previous month and confounded forecasts for a slight decrease to 26,000.

The figures may be an early indication that banks are starting to lend again after billions of pounds of capital injections from the government.

The pound rose against the euro and dollar as investors priced in a slight improvement in the outlook for the economy.

"It's clearly better than expected, but it's important to remember that we're coming off all-time lows," said Amit Kara, economist at UBS. "These numbers are consistent with further pretty sharp falls in house prices."

The BoE is expected to cut borrowing costs by 50 basis points at its policy meeting next week, taking rates down to another record low of 1 percent.

"It is wrong to say the housing market is recovering and does not derail the prospects of lower interest rates next week," said Philip Shaw, economist at Investec.

The seasonally-adjusted data also showed that Britons made a net repayment of their credit card debts in December for the first time since May 2007, with consumers much more cautious than a year earlier in racking up credit card bills.

Figures on money supply published at the same time showed M4 growth slowed to 16.1 percent year-on-year in December from November's record high of 16.2 percent.