Bank of England reveals unexpected rise in borrowing

02 March 2005
Figures released yesterday by the Bank of England revealed a near-record increase in borrowing across the board.

Total lending rose by £9.5 billion pounds in January compared with £8.5 billion in December, Reuters reported. This takes total UK household debt to £1.065 trillion.

Credit cards and other unsecured loans rose by £2.3 billion, more than the £1.6 billion economists were expecting.

Whilst mortgage approvals were lower than expected, falling to 79,000 in the face of predictions of 82,000, the Bank of England maintained that figures show the fastest month-on-month increase in mortgage lending since September 2004.

The news, coupled with Nationwide Building Society's announcement that house prices rose 0.5 per cent in February, indicates a mini-boom in the housing market.

However, it is likely to be shortlived, with economists expecting the Bank of England to increase the cost of borrowing with a hike in interest rates
at its meeting on March 10th.

"The essential stabilisation in mortgage approvals and lending in January reinforces the impression that the housing market activity could be past the worst after slowing markedly in the second half of 2004," said Howard Archer, chief economist at Global Insight.

"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."

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