August 30, 2011 / 8:37 AM / in 8 years

Consumer lending weak as home loans edge up

A row of terraced houses are seen below an apartment block in London August 30, 2011. REUTERS/Luke MacGregor

LONDON (Reuters) - Lenders approved the highest number of mortgages since May 2010 last month but consumer borrowing was unexpectedly weak, doing little to shift a downbeat outlook for retail spending and property prices.

The Bank of England said mortgage approvals numbered 49,239 in July, rising from an upwardly revised 48,500 in June. This was a shade above analysts’ forecasts but well below levels seen before the 2008 financial crisis.

“It all looks pretty much as expected, pretty subdued and in line with recent trends,” said Ross Walker, economist at Royal Bank of Scotland. “Approvals are inching up, but still running at half the long-run average. You’d be hard-pushed to make the case that it’s a meaningful uptrend.”

There was no significant market reaction to the data.

Net consumer credit increased by the smallest amount since January this year, growing by just 0.205 billion pounds — half June’s 0.4 billion pound increase, which analysts had expected to see again in July. Net mortgage lending rose in line with forecast, growing by 0.7 billion pounds.

Consumers have been reluctant to take on more credit for major purchases, worried by sharp cuts and layoffs in the public sector as well as a broadly uncertain economic outlook.

Rates on consumer and mortgage loans also remain relatively high despite the Bank of England running record low official rates, due to banks’ conservative approach to lending since the credit crunch.

“Consumer desire to get a tighter grip on their finances is the consequence of current very low and falling consumer confidence, which reflects heightened concern over the outlook for the economy and jobs,” said Howard Archer, an economist at IHS Global Insight.

Separate figures showed the Bank’s preferred money supply gauge — M4 excluding intermediate other financial corporations — picked up to show growth of 0.6 percent on the month, the strongest since March 2010, after a 0.1 percent fall in June. Three-month and 12-month rates of growth on this measure also accelerated to their strongest since the start of the year.

Reporting by David Milliken and Olesya Dmitracova

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