Rate cut prompts increase in mortgage approvals

The number of mortgages to buy homes rose sharply last month in the first annual increase for more than a year, the British Bankers' Association said yesterday.

The data are the latest to suggest that the housing market may be stabilising after slowing sharply early this year. The BBA said 69,500 mortgages were approved last month, up from 65,600 in July and a rise of 8.5% from August last year.

The BBA data are not seasonally adjusted but City economists who ran their own adjustment said there was also a spike in seasonally adjusted terms, probably in reaction to the first interest rate cut from the Bank of England for two years in August. Alan Castle, of Lehman Brothers, said: "This apparent reaction to the August rate cut is certainly larger than either we or the Bank of England would have expected but we judge it unlikely that demand will remain at these levels."

Economists at Barclays Capital were more bullish, however, arguing that recent data suggested that house price inflation could pick up again in the coming months, having slowed towards zero over the past year. "This release lends support to the view that house price inflation looks set to bounce back firmly," said Barclays Capital's economist George Johns.

The housebuilder Linden Homes reported that investors were returning to the market this autumn, with reservations for newly built properties up by almost half in the first two weeks of September compared with the same period last year. Philip Davies, chief executive, said: "Professional landlords with plenty of cash have held their nerve over the summer but many were choosing not to expand their portfolios until now. They are investing for the long term and are not expecting a return to the house price inflation of previous years."

Separately, IFA Promotion, an umbrella group for independent financial advisers, released research showing that higher interest rates had boosted saving and cut borrowing sharply in 2005. It said saving had reached its highest level and borrowing its lowest since it started monitoring the data in 2001. Credit card debt was now being repaid rather than built up, it said.

Its findings were backed by the BBA, which confirmed provisional figures from last week showing a net repayment of credit card debt in August for the second time this year. The BBA reported a rise in loan and overdraft borrowing, however.

· Business investment in Britain has been growing faster than had been thought and is at record levels, revised data showed yesterday, but economists warned that the better picture may not last.

The Office for National Statistics said capital investment by firms - a key element of economic growth - rose 1.5% in the second quarter from the first to stand 4.2% up on a year earlier at a record £28.7bn. The ONS originally estimated a rise of just 0.5%. The ONS also upwardly revised the growth rates in previous quarters, something that will please the Bank of England and Gordon Brown.