Beckham clue to debt riddle

HOME buyers and consumers are still borrowing as if there were no tomorrow - and the Bank of England is still sitting on its hands. Neither of these is likely to continue indefinitely.

There are two views on the dangers. The pessimistic one is that personal debt is surging past £1,000bn, debt advisers report that borrowers are in difficulty and desperate first-time buyers are borrowing five or six times their income and will soon be in trouble.

The optimistic version is that home owners' property is probably worth £3,000bn and their shares and other savings as much again. A research study this week suggested a modest 4% of borrowers think their debts excessive, much the same as for the last five years.

The 20% surge in home lending in March, reported by the Council of Mortgage Lenders, is eyewatering. Yet the small print finds that average loans to first-time buyers in March were 2.87 times income, and to those moving home 2.7 times.

What is actually going on in the housing market? Lenders say a massive catch-up is taking place around the country, led by the north of England, Wales and Scotland.

An HBOS survey found the fastest price rises in the UK were in towns such as Rotherham, Halifax, Sheffield and Pontefract. After a long period in which its house prices crawled up at 2% a year, the North has come into its own. In housing, this is a Rotherham recovery - led by areas where homes, even now, are much more affordable than in the South.

Deciphering the house boom is not easy. Monetary Policy Committee member Richard Lambert admits that it is the biggest uncertainty in its interest rate decisions.

The MPC's reluctance to raise rates - even last month, when only one of its nine members backed a rise - has left many wondering why.

Does Beckham have the answer? Not the famous text messager, but the new Bank of England Quarterly Model of the economy which it proudly unveiled yesterday - and which is known by its initials BEQM, pronounced Beckham.

To some people, one model is much like the next. But Jonathan Loynes, at Capital Economics, has spotted a difference with BEQM. It reckons that a rise in interest rates slows the economy six months earlier than the old model assumed.

Loynes says: 'The new model suggests there is less of a hurry to raise interest rates.'

This is an intriguing twist to the interest rate debate, though there are other good reasons - sterling being one - for the MPC to hold its fire.

But fire it will, possibly very soon. No one doubts that base rates will rise from 4% to 4.5% or 4.75% by year-end. Lambert hinted strongly that one reason for the gradual approach is to avoid a sudden squeeze on borrowers. Yet sceptics, such as Stephen Lewis at Monument Securities, warn that gradualism is not working.

Borrowers should take note of the warning signs.

Brown study

GORDON Brown is the biggest borrower of all - but not quite as big as he himself feared five weeks ago. On Budget Day he forecast public borrowing of an alarming £37.5bn for the tax year which ended on April 5.

In fact, he borrowed only £34.8bn. Receipts from income tax (swollen by City bonuses) and VAT ticked up and spending is not running away so fast.

Before church bells ring and there is dancing in the streets, we must remember that £34.8bn is a hefty sum. The deficit for the current year is forecast at a further £33bn. Year-on-year government spending is still rising at a rapid 8%.

But that compares with 8.5% a month earlier. RBS Markets economist-Ross Walker says the annual spending rise peaked at 10.8% last July and has been falling since. It needs to fall some more, but at least the figures are no longer worsening. Brown and Prudence are still on talking terms.

Power play

CENTRICA'S purchase of the Bastrop power station in Texas is more significant than the £80m price tag suggests. This is its first North American power plant and it will be followed by others. A budget of £350m has been earmarked.

Having moved from gas to electricity and insurance, Centrica chief Sir Roy Gardner hopes to repeat the trick in North America. It already has 4m customers, but its £2.4bn sales are only 13% of the group total.

The difficulty is that US energy markets are hugely volatile and sudden price swings can leave a nasty hole in your balance sheet. Centrica appears confident it can ride the tiger. If its confidence proves justified, the shares' rerating could have further to go.