Credit card lending bounces back

FEARS for consumer spending and the health of the property market were eased today after official figures showed an unexpected increase in borrowing during May.

An additional £9.8bn was lent to individuals in May, up on £8.7bn the month before and a monthly average increase of £8.9bn over the past six months, according to the Bank of England.

The amount of new borrowing on credit cards and loans was £1.85bn, up from £1.34bn the month before and easily ahead of City expectations of £1.6bn.

Demand was particulary high for credit cards, with the net increase in new borrowing leaping from £358m to £800m. It was also higher than £762m a year ago. Britons now collectively owe a total of £55.7bn on their plastic. Borrowing on loans rose from £980 to £1.05bn, lower than £1.17bn in May 2004.

The figures come just days after the Bank warned that the record levels of debt people had taken on could be a threat to the economy.In its Financial Stability Review it said the rate at which lenders were writing off consumer debt rose sharply during the second half of 2004, as people were unable to meet repayments on credit cards and loans, and this increase may not have been fully anticipated by the banks.

The Bank of England figures also showed lending on mortgages and personal loans secured on homes rose £8bn, up from £7.3bn a month earlier and a strong increase on a six-month average of £7.1bn. The number of mortgage approvals edged up to 96,000 from 95,000 in April.

'[Mortgage lending and approval numbers] are grinding higher and that should tell the Bank of England that the market is stabilising,' said Alan Clarke, economist at BNP Paribas.

'The numbers show that the economy is not in bad a shape as some people think it is,' said Moyeen Islam, a strategist at Barclays Capital. 'The Bank of England has talked about a controlled slowdown in the housing market and these numbers confirm that.'