Credit rises at fastest rate for 10 years

Household borrowing increased at its fastest annual rate in ten years last month as consumers shrugged off worries about the slowing world economy.

Total lending to individuals rose by £6bn in September, the third highest monthly increase on record, according to figures released by the Bank of England. Consumer borrowing is now increasing at more than 10% a year.

But while overall credit figures remained strong, mortgage lending slowed sharply last month, increasing by just £4.5bn, well down on August's record £5bn jump.

Analysts said the personal borrowing figures suggested household confidence had held up in the aftermath of the terrorist attacks on the US.

Jonathan Loynes, UK economist at Capital Economics, said: "The numbers fit in with the findings of recent surveys that, despite grave concerns over the economy, households are still confident in their own financial prospects."

However, recent reports from high street retailers suggest that sales were down early this month. A survey from the Confederation of British Industry this week will give the first snapshot of how retailers fared.

There were signs of a cooling off in the housing market last month, according to the Bank's figures.

Mortgage approvals fell to 102,000 from 113,000 in August, suggesting that house buyers are becoming increasingly nervous about the outlook for the economy.

"This may be no more than a temporary reaction to September 11 or it may signify a lengthier period of adjustment in the housing market and a bigger hit to consumer confidence," said Geoffrey Dicks, UK economist at the Royal Bank of Scotland.