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The chances of another rise in interest rates faded today as mortgage lending slowed to its lowest level for a year during August.
In an another sign that the series of interest rate rises since last November is having an effect, consumer confidence fell this month to its lowest in 18 months.
The market research group GfK Martin Hamblin said its monthly barometer of British consumer sentiment slipped to minus seven in September from minus five in August, the lowest since minus 10 in March 2003 at the start of the Iraq war. September's drop was led by deterioration in perceptions about personal finances over the last 12 months.
Earlier, the Bank of England said that mortgage lending had slowed during August, supporting recent surveys from mortgage lenders that the housing market is coming off the boil. The Bank said lending secured on dwellings grew by ?8.4bn in August compared with ?8.7bn in July.
The number of new mortgage approvals, loans agreed but not yet made, fell for the third straight month to 96,000 in August from 100,000 in July, the lowest since November 2000.
As well as the slowdown in mortgage lending and the drop in consumer confidence, the Confederation of British Industry reported an unexpected drop in retail sales in September. The CBI's monthly distributive trades survey showed the weakest retail performance since March 2003.
Today's data prompted analysts to reconsider their previous forecasts of one more interest rate rise this year. Base rates now stand at 4.75% after five interest rate rises since last November. Most economists had been expecting another tightening before the end of the year, but as further evidence emerges of a slowdown in the housing market, those predictions are being revised.
"It seems increasingly likely that the Bank of England will leave interest rates unchanged for the rest of this year, and we are becoming ever less confident in our current forecast of a 25 basis point hike in November," said Howard Archer, an economist with the consultancy Global Insight.
Some analysts warned, however, that a premature end to the current round of interest rate rises could spark a resurgence of consumer spending.
"There is a real danger that a softer tone from the Bank of England about the outlook for interest rates sparks a re-acceleration in consumer activity later in the year. While that uncertainty persists, the Bank is likely to be reluctant to signal the peak in the interest rate cycle," said John Butler, an economist with HBSC bank.
There was some evidence in the Bank of England figures that consumers have not quite yet thrown in the towel. While mortgage lending is slowing down, the Bank reported that unsecured lending remained strong.
In August, unsecured lending rose by ?1.8bn compared with a rise of ?1.7bn in July, roughly in line with market expectations. Within that, lending on credit cards rose by ?901m, the biggest gain since March.
The figure suggests that consumers, who have so far amassed more than ?1,000bn of outstanding debt, have not lost their appetite for borrowing just yet. Still, total personal borrowing was up by its weakest amount this year, rising by ?10.2bn compared with ?10.5bn in July.
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