Housing market helps build ?2bn lending record

Cheap borrowing and bright job prospects fuelled a consumer credit frenzy last month with new lending by banks rising above £2bn for the first time, according to figures from the British Bankers' Association, writes Mark Atkinson .

With mortgage rates now averaging around 5.5%, the bulk of the money - £1.36bn - was channelled into the housing market, which also benefited from building society customers taking new home loans worth £957m.

But business borrowing was depressed by financial firms repaying debt, leaving overall net private sector lending subdued at just £400m, compared to June's gain of £9.1bn.

The weakness of lending to the private sector played a crucial role in the second consecutive monthly fall in M4, the broad measure of money supply. Its annual growth rate stood at just 3.5% in July - the weakest level since September 1993.

City analysts said the headline money supply figures did not fit other evidence of rising economic activity, but the detail of the data was more in keeping with an improving outlook for growth.

"Building societies' mortgage lending looks pretty solid and lending to the personal sector generally has remained robust through the summer," said David Coleman, chief economist at CIBC, the Canadian bank.

Adrian Coles, director-general of the Building Societies Association, played down fears of a 1980s-style housing boom. He said the market was "two-tiered", with hot spots where prices rose quickly while other areas suffered from weak demand and static prices.

"Buyers in local hot spots may want to exercise some caution," Mr Coles said.