May recovery emerges as spending and lending rise

RETAIL and mortgage data for May released yesterday pointed to a strengthening economy, as both outstripped modest expectations.

Mortgage lending has reached a five year high as the housing market begins to heat up again, and the value of retail spending rose above inflation, suggesting a recovery based on consumer spending.

The value of sales in retail rose by 3.1 per cent between May 2012 and May 2013, beating predictions for a much smaller upswing, according to the Office for National Statistics (ONS).

May’s gross mortgage lending rose to £14.7bn, a 17 per cent improvement on May 2012, as recorded by the Council of Mortgage Lenders (CML). Mortgage lending is still much lower than at the peak of housing market in 2007, but is now back to a level last seen in October 2008.

Both figures came as something of a surprise, and suggest the economy may be picking up some strength.

On the increase in mortgage lending, Howard Archer, chief UK economist at IHS Global Insight said: “the rate of housing market activity may be starting to really step up a gear”.

In retail, the largest growth came from non-store retailing, including online sales, booming by 19.1 per cent.

Nida Ali, economic advisor to the Ernst & Young Item Club, said: “there appears to be a slow but steady improvement in the retail sector, supported by a gradual improvement in household spending power”.

The boost to retailers came as a surprise, as only a small rise of around 0.2 per cent was forecast. With the strongest growth in online sales, high streets may not yet be feeling much relief from recent pressure.

The CBI’s industrial trends survey also indicated an marginal upswing in orders for June, but was still down from March. Firms still have a positive outlook for the quarter ahead.