Consumer borrowing grows at fastest rate since 2008 crash

Bank of England corrects figure on net unsecured lending, with jump adding to fears UK is relying on debt-fuelled recovery

The Bank of England has admitted to an error in its data and said consumer borrowing has been growing at its fastest rate since before the financial crisis five years ago.

The Bank said on Thursday that net unsecured lending to consumers – overdrafts, personal loans and credit cards – rose by £864m last month, the biggest increase since December and more than double the £411m figure it first reported.

The jump meant unsecured lending in the three months to September increased by 5.8% on an annual basis, the strongest growth since April 2008.

The surge in borrowing will raise concerns that Britain is relying on a debt-fuelled recovery at a time when policymakers have repeatedly stressed the need to rebalance the UK economy away from spending and towards manufacturing and exports.

Ross Walker, UK economist at Royal Bank of Scotland, said: "There is an amber warning light here – not an immediate risk but a medium-term financial stability concern. The notion that we have gone through a full deleveraging cycle is abject nonsense."

On Thursday, new data showed UK consumer confidence has risen to its highest level for six years despite the ongoing squeeze on disposable incomes. While levels of confidence lag those reported in Germany, Australia and the US, and a degree of pessimism remains, confidence has grown at a faster rate in the UK than in most European countries, according to figures from the market research firm Nielsen.

Its survey of more than 30,000 online consumers in 60 countries found those in the UK rated their confidence at 87 in the three months to the end of September, with levels above 100 indicating optimism and below pessimism. German confidence stands at 92 and the US at 98, France stands at 61 and Portugal and Spain at 55 and 56 respectively.

Chris Morley, managing director of Nielsen in the UK and Ireland, said British consumers had coped with rising household costs and falling real-term wages by shopping carefully and hunting bargains.

He added: "Throughout this period, British consumer confidence remained stubbornly weak, but in recent months it has finally taken an upward turn as the green shoots of economic recovery start to show."

Positive news on the UK housing market has boosted sentiment. But Nielsen also revealed a growing perception that the economic downturn in Britain is over.

With a move towards optimism, the proportion saying they were willing to spend crept up five percentage points to 39%.

Utility bills are now by far the biggest concern for people living in the UK. Energy and water bills were highlighted as a top concern by 31% of those questioned, compared with 27% a year ago as several of the major gas and electricity providers have raised prices in recent weeks.

Article Source : http://www.guardian.co.uk
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Bank of England holds off action on house prices despite bubble fears

FPC will 'closely monitor' property market, while FCA will assess vulnerability of hedge funds to rate changes

The Bank of England has stepped back from taking immediate action to cool the housing market but is monitoring property values closely afterhouse prices returned to their pre-crisis levels.

The Bank's financial policy committee, which meets quarterly to assess risks to the financial system, said it is also reviewing work by the Treasury on preventing the risk of cyber-attacks to the banking industry and stepping up its assessment of the vulnerability of hedge funds to sudden changes in interest rates.

At a time when George Osborne's housing market schemes are raising concerns about sharp rises in house prices – particularly in London – the FPC said it would "closely monitor developments in the housing market and banks' underwriting standards".

"The committee would be vigilant to potential emerging vulnerabilities," it said in a statement released following its meeting on 18 September. The committee, which is chaired by Bank of England governor Mark Carney, said if it did decide to deploy any of its powers to cool the market – such as forcing banks to hold more capital – it would do so gradually.

But while it is not moving immediately to cool the housing market, the FPC has been assessing the impact that sharp upward moves in long-term interest rates could have on households and major financial institutions.

While it concluded that there was no immediate threat to banks and insurance companies it wants more information about the impact on hedge funds, which borrow money to take bets on stock markets, currencies and commodities.

The City regulator, the Financial Conduct Authority, will now assess the "potential amplification" through the financial system of interest rate changes – or perceptions of interest rate changes that may be caused by central bank policies on reducing the stimulus currently being pumped into markets to keep interest rates low.

"The levels of leverage within, and therefore the vulnerability of, hedge funds needed to be looked at more closely," the FPC said.

The FPC's comments on the housing market will be closely watched by the market as the chancellor has insisted he is not creating a housing bubble – even though property prices have broken through their pre-crisis peak. The average price of a UK house has passed the peak five years ago of £245,000 but Osborne has said the FPC will have powers to stop any over-inflation in house prices.

The FPC noted that while mortgage approvals in July were 30% higher than a year earlier and average house prices in August were 5% higher, activity in the housing market was nevertheless below historic averages. "Households' debt servicing costs were low and the ratio of house prices to earnings was at its level of a decade ago," the FPC said.

The committee said it could force banks to change their lending criteria, impose additional capital requirements and make recommendations to the regulators on tightening affordability tests for borrowers.

Martin Beck, UK economist at Capital Economics, said it was reasonable for the FPC to hold back on intervention even though house prices compared with earnings are still above the level of the 1980s housing boom. "This growing unaffordability should act as a natural check on house price growth. There is no suggestion that banks are about to return to the very loose lending conditions of the mid-2000s, with 110% mortgages and self-certified loans. So the workings of the market may stay the hand of the FPC in having to intervene."

Article Source : http://www.guardian.co.uk

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Strong carpet and furniture sales boost UK retailers, CBI says

Shops and stores had a better September than expected as the recovering property market affected rest of economy

Sales of furniture and carpets are rising strongly as the impact of Britain's recovering housing market affects the rest of the economy, the CBI has said.

The latest snapshot of retailing from the employers' organisation showed that shops and stores had a better September than anticipated and expect the improved trading environment to continue into October.

The pickup in activity was led by the furniture and carpets sector, where for the first time since 1996 every one of the retailers questioned by the CBI said sales were higher in September than a year earlier.

But the monthly distributive trades survey found that the pickup was broad based, with grocers and retailers selling recreational goods also reporting strong growth in sales volumes.

Overall, 46% of the 111 firms questioned said business was better than in September 2012 while 12% said it was worse. The balance of +34% was the highest since June 2012 and was accompanied by retailers placing more orders with suppliers.

Barry Williams, Asda's chief merchandising officer for food and chairman of the CBI distributive trades survey panel, said: "It's encouraging to see the high street on the road to recovery, with particularly strong growth from furniture and carpet retailers, department stores and recreational goods retailers.

"But the retail sector is not out of the woods yet with consumer confidence still fragile despite the rise in spending."

The CBI reported that 22% of retailers said sales volumes were above average for the time of year, while 10% said they were below average. The balance of +12 points was the highest since December 2010.

David Tinsley, economist at BNP Paribas, said: "The most obvious caveat to reading too much into this survey is that the relatively good result in August was not reflected in the official retail sales data for that month, which fell 1%. Still, the broad momentum of sales appears firm and upwards. And the CBI survey suggests this remains the case."

Richard Lowe, the head of retail and wholesale at Barclays, said: "Retail sales have grown for the third month running, and these strong figures will no doubt provide a fillip for the high street.

"Retailers will now be hoping for more seasonal weather to help sales of new autumn/winter collections and for consumer confidence to tick up as we head towards the crucial Christmas trading period".

Article Source : http://www.guardian.co.uk

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Mortgage lending shows no sign of summer slowdown

August mortgage figures continue July's trend of bettering pre-recession totals, helped by the government's Funding for Lending scheme

There were no signs of a summer lull in the housing market, with mortgage lenders reporting the value of home loans was up by 28% year-on-year in August.

Gross mortgage lending reached an estimated £16.6bn during the month, almost identical to the £16.7bn recorded in July, which was the highest figure since October 2008.

The Council of Mortgage Lender's chief economist, Bob Pannell, said it was the beginning of a "healthy and broad-based recovery in mortgage lending activity", fuelled by improvements in funding for banks and buildings societies.

The government's Funding for Lending scheme, launched in August 2012, has been one factor, enabling lenders to access low cost funds and make mortgages available at higher loan-to-values.

In January, the Help to Buy mortgage guarantee scheme is also set to come into place, to encourage the return of 95% mortgages.

Article Source : http://www.guardian.co.uk

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