Bank lending data shows slump

City A.M. Reporter
Lending to consumers and homebuyers rose less than expected in March, Bank of England data showed, adding to evidence of a sluggish economy from the construction sector and falling house prices.

A slew of weaker-than-expected data, kicked off by tepid first-quarter growth figures last week, have caused economists to push back their expectations of a first 25 basis point Bank interest rate rise to the end of the year.

Bank data showed that growth in net unsecured consumer lending slowed to £0.1bn in March, well below the £0.45bn increase that had been forecast in a Reuters poll.

Net mortgage lending also rose less than expected, with a £0.4bn increase.

Mortgage approvals were a relative bright spot, with 47,557 home purchases given the go-ahead in March, the highest number since November. But even this was slightly less than the 48,000 economists had predicted.

"The big picture is of a pretty lifeless housing market, with low turnover and very little new money coming into it," said Ross Walker, an economist at Royal Bank of Scotland.

Data released by mortgage lender Nationwide earlier on Wednesday showed a 0.2 per cent fall in house prices last month, the biggest drop since November last year. Nationwide expects house prices to be flat or fall slightly in 2011.

Weak housing market activity is having a knock-on effect on the construction sector. The Markit/CIPS construction PMI index fell more than expected to 53.3 in April from 56.4 in March, and significantly off February's 8-month high.

Sterling fell to a 13-month low against the euro on the data.

All these factors make it a near certainty that Bank will not raise interest rates from a current record low of 0.5 percent on Thursday, when it concludes its May Monetary Policy Committee meeting.

Although inflation is double Bank's target at 4 per cent, money supply growth is far below historic averages. Headline M4 broad money holdings are 1.1 per cent lower than a year ago.