Consumer borrowing leaps £2.3bn

BRITISH consumer borrowing showed its biggest gain since June last year in January, prompting speculation that interest rate rises have failed to calm the spending spree.

New consumer lending topped £2.3bn during the month, up from £1.6bn in December, and well in excess of analysts' expectations of a £1.7bn increase.

Credit card lending was particularly strong during the month, recording the largest increase since March last year.

However, the Bank of England figures revealed a 4,000 fall in mortgage approvals to 79,000, despite mortgage lending growing by £300m to £7.2bn. The figures suggest that the UK housing market may not be slowing as much as previously thought, and the level of consumer credit may be of sufficient concern for the Bank to consider a rate rise in the coming months.

In June - the last time consumer credit jumped so much - the Bank's monetary policy committee was still in the process of tightening monetary policy.

Howard Archer, chief UK economist with Global Insight, said: 'The data support the belief that the state of the housing market will not stop the Bank of England from putting up interest rates again. In addition, the sharp rise in consumer credit in January suggests that consumers are becoming more prepared to borrow following the lack of interest rate hikes since August.'

Philip Shaw, chief economist at Investec, said the figures painted a mixed picture for the economy, with stabilisation expected.

Lehman Brothers economist Alan Castle said: 'We were expecting some weaker approvals and net lending numbers and they came in a bit stronger than expected. I don't think that the MPC will be hiking rates next week but the probability of a surprise move has probably increased to about one in three.'

UK interest rates have been left on hold at 4.75% since August last year following five rises from November 2003. The MPC is due to meet on Wednesday and Thursday next week to decide on interest rates.