Consumer credit spending spree slows

Consumer borrowing showed signs of waning during December with unsecured lending rising at its slowest rate for three years, figures showed today.

The Bank of England said borrowing through loans, overdrafts and credit cards increased by just ?834 million last month, well down on November's ?1.44 billion jump and nearly half October's rise of ?1.63 billion. This was despite total advances of ?17.44 billion during the month, the fourth highest figure on record. Increases in credit card lending were particularly weak, rising by just ?135 million, compared with a jump of ?475 million in November.

Simon Rubinsohn, chief economist at stockbroker Gerrard, said: "For some reason people paid back a lot more debt in December." He said this may be a reaction to November's hike in interest rates and speculation that rates would rise again early this year, or it could just be a one-off during December.

But analysts said the figures were unlikely to have much impact on the Bank of England's Monetary Policy Committee, which begins its two-day meeting on Wednesday. The MPC, which has previously expressed concerns about the levels of debt consumers are taking on, is widely expected to increase the bank base rate from its current level of 3.75%.

Philip Shaw, an economist at Investec, said the lending figures were surprisingly weak and suggested consumer borrowing was slowing down. However, he said: "I don't think the Bank of England will take too much notice of one month's figures, and the likelihood is that the MPC will raise rates again next week. "If they remain weak, and it's a big if, we may be closer to the peak in interest rates than we previously thought."

Mortgage lending was also more subdued during December than in previous months. The Bank said a total of ?24.68 billion was advanced, and after redemptions and repayments were taken into account, overall mortgage lending rose by ?7.28 billion, the weakest figure since March.

The number of mortgage approvals was also down, with loans worth ?26.55 billion approved during December, down from ?27.19 billion in November. Only 121,000 mortgages were approved for house purchase, compared with 124,000 the previous month and a recent average of 123,000.