Mortgage approvals hit new low

Mortgage approvals slumped by nearly half in January compared to the same month a year ago while consumer spending growth slowed to its weakest in nearly two years in the fourth quarter, according to figures released yesterday.

But, highlighting the Bank of England's dilemma over interest rates, other figures showed pay settlements have jumped to a six-year high.

The British Bankers' Association reported that only 31,285 new home loans were approved in January, the lowest number for six years and a plunge of 22% from December and 43% from January last year - the sharpest annual drop since records began eight years ago.

"Mortgage lending resumed its relatively subdued trend in January and this looks set to continue in the near term as approvals of loans for house purchases and equity withdrawal were very weak, even for a January," BBA director of statistics, David Dooks, said.

Approvals are considered a good guide to the direction of house prices, and economists said the latest numbers pointed to weak prices in the coming months.

"The continued decline in approvals suggest that house prices should weaken more noticeably over the coming months," said George Buckley, economist at Deutsche Bank in London.

Another piece of gloomy news came from the Office for National Statistics which confirmed that the economy had expanded by 0.7% in the fourth quarter of the year from the third. Economists had expected an upward revision to 0.8% on the back of stronger than expected December manufacturing output.

But the ONS said that while manufacturing was stronger than it had thought, the services sector had grown less robustly than it had estimated, at 0.9% on the quarter.

Household spending grew only 0.4% on the quarter, down from 0.6% in the third quarter, and the weakest since the first three months of 2003. This confirms the flat reading in retail sales over Christmas and explains the Bank's concern that consumption growth is slowing down.

Deputy governor Rachel Lomax said yesterday: "There are some uncertainties about household spending ... the market has cooled a fair bit."