Home loans hit a seven-month high

New mortgage approvals surprised the City yesterday by rising to a seven-month high in March, suggesting the housing market may be bottoming out, for now at least.

The Bank of England also released data showing unsecured borrowing rose sharply, confounding the impression that the consumer was scaling back borrowing and coming as a relief to Labour less than a week from the election.

Economists said the data would make little difference to the Bank's deliberations on interest rates. Most think the monetary policy committee will leave rates steady at 4.75% for the ninth month running when it meets in a week's time.

The Bank said mortgage approvals rose to 91,000 last month from an upwardly revised 86,000 in February and the highest since last August. The new figure was still 25% lower than a year ago, however.

"Mortgage approvals ... add to the impression that after last year's sharp decline in confidence, the market may be stabilising," said Ed Stansfield of Capital Economics.

"[But] other recent surveys also suggest that conditions in the market remain very difficult and suggest that the latest upturn in approvals may not persist for more than a few months," he said, adding that mortgage approvals were now following a very similar pattern to the early stages of the bust of the early 1990s.

Various housing market surveys have suggested that the market may be stabilising after weakening late in 2004, but some economists say this may simply be the traditional spring bounce that may not last.

The Nationwide, for example, on Thursday reported that prices rose 0.9% in March from February after a 0.6% fall the month before.

The Bank also reported a rise in consumer credit growth yesterday, to £1.85bn last month from £1.64bn in February and well above the levels the City had expected. Economists said that as retail sales had been very weak in March, the lending rise could suggest that with household disposable income growth having been weak, consumers were running up more debt to finance even modest spending.

Two measures of consumer confidence, both out yesterday, showed that confidence might now be wilting in the face of higher interest rates and a static housing market.

GfK Martin Hamblin's monthly confidence barometer fell to zero in April from +1 in March. Britons were more downbeat on the outlook for their economic situation and personal finances.

"Pre-election activity has not yet had a real impact on consumer sentiment, but it will be interesting to see how next week's result impacts on consumers' mood," said Reza Chady, Director at GfK Martin Hamblin.

Britain showed the steepest decline in economic confidence in the European Union this month, showing a 4.7 point fall and helping to drag the economic sentiment indicator (ESI) for the 25 countries down a further 1.7 points on top of a 2.4 point fall in March.

The European commission's latest ESI showed British industrial, services, consumer, retail trade and construction confidence all showing large falls, with a five point decline in industrial confidence and a seven point fall in construction. Consumer confidence fell three points.