Personal debt at record high

British consumers and home buyers took advantage of cheap credit to stack up record new borrowing last month, as confidence bounced back from post-September 11 lows.

Personal debt, which includes mortgages and credit card spending, rose by £6.5bn in October, the largest monthly jump on record, as consumers shrugged off economic gloom and flocked to Britain's shops and estate agents, Bank of England figures showed.

Analysts said the 10.4% annual rate of growth in personal borrowing, underpinned by historically low interest rates, backed the chancellor's claim in Tuesday's pre-budget report that consumer spending would help cushion Britain from the slowdown gripping the US and the eurozone.

"The resilience of personal borrowing [plus the massive loosening of fiscal policy] suggests that UK growth will continue to outperform the global norm," said Michael Saunders of Schroder Salomon Smith Barney.

Further evidence that Britain's consumers are unfazed by the storm clouds gathering over the global economy came in November's GfK consumer confidence barometer, also released yesterday, which ticked up slightly to -3, after falling for four consecutive months.

Consumers are markedly less optimistic about the wider economic situation than their own finances, however, the GfK survey shows, with the measure of expectations for the future down 13 points on the same time last year, at -26, despite rising slightly over the month.

October's brisk increase in borrowing included a £5bn rise in outstanding mortgage debt, according to the Bank of England figures.

A rise in new mortgage approvals - which indicates future demand in Britain's property market - appeared to scotch claims that a slowdown is in prospect. October saw 110,000 new mortgages approved for house purchase, up from 103,000 in September.

Consumer credit accounted for the other £1.5bn of fresh debt last month, as shoppers geared up for heavy spending at Christmas by borrowing 12.9% more than a year earlier.

The Bank of England's monetary policy committee is relying on consumer demand weakening slightly in the coming months to dampen inflationary pressures, but Mr Saunders said yesterday's strong borrowing figures showed it would have to be ready to act quickly as the economy begins to recover. "If and when global growth picks up, then the MPC will need to hike rates promptly to slow the housing market and consumer spending, in order to prevent the pick up in export growth from causing the economy as a whole to overheat," he said.

Yesterday's GfK survey showed consumers see little sign of inflation in the pipeline, however, with household perceptions of rises in the cost of living hitting an all-time low, as fierce competition erodes retailers' pricing power. More than 41% of those questioned said there had been no increase in the cost of living since one year ago.