Lending to British consumers rose slightly in February, data from the Bank of England showed today but a fall in mortgage approvals for a second consecutive month revealed bank lending was still in a precarious state.
More positive news came in the form of loans to small businesses, which posted their strongest rise since June last year, climbing by £114million, according to the Bank. But this followed an average monthly decrease of £700million in lending to small businesses over the last six months.
Consumer credit rose by a net £0.6billion in February, higher than the £0.5billion increase in January.
The figures showed credit card lending increased by £223million in February, on a par with the rise seen in December during the Christmas shopping period suggesting people may be turning in greater numbers to their plastic to help deal with monthly essentials.
Personal loan and overdraft lending also increased by £416million, which is also the biggest rise seen since December.
Mortgage lending grew by £0.9billion in February, to £7.7billion, stronger than January's growth of £0.3billion, the data showed.
But the mortgage approvals fell to 51,653 in February, the lowest since September last year and down from 54,187 in January.
The number of approvals was slightly better than the monthly average of around 51,000 seen last year, but still just over half the typical level seen before the 2008 financial crisis.
A rise in the flow of credit in recent months, particularly in home loans, has fed hopes that the Government’s flagship ‘Funding for Lending Scheme’ is working.
Similar data published by the British Bankers' Association last month showed a 6.3 per cent fall in mortgage approvals in February compared with a year earlier, as well as a drop compared with January.
Elsewhere, data showed manufacturing continued to decline last month. The Markit/CIPS manufacturing purchasing managers' index gave a reading of 48.3 for March, only slightly above February's shock reading of 47.9, and lower than City analysts had hoped. A reading below 50 points to a contraction in economic output.
Peter Dixon economist at Commerzbank said the manufacturing figures were slightly below expectations but ‘in the grand scheme of things not too far away'.
‘The more important thing is that they are struggling to get back above the 50 level ... this is largely a consequence of problems in external markets, rather than what's happening at home,’ he added.
‘But unless we see some signs of improvements in continental Europe in particular over the next few months, I think that index is going to struggle to get above 50 any time soon’.
Meanwhile, Howard Archer, chief UK and European economist at IHS Global Insight, said the continued parlous state of the economy is likely to weigh down on house prices in the coming months.
He said: 'Despite the dip in mortgage approvals at the start of 2013, the majority of recent data and survey evidence suggest that housing market activity has firmed modestly overall in recent months, but remains far from racing ahead.
'House prices may very well eke out a small gain over 2013 supported by modestly increased activity. However, it remains hard to see house prices making a decisive move upward in 2013 given the still difficult and uncertain economic environment.'
Chris Love, a director at independent mortgage broker, Mortgage Simplicity, said the data showed how dysfunctional the mortgage market still was.
‘The sharp fall in loan approvals for house purchase during February is a stark reminder of how the mortgage and property markets remain volatile, constrained by both strict lender criteria and low consumer confidence.
‘You can't do anything about weak demand but there is certainly room for improvement in lender criteria, which in many cases remain excessively harsh.’
He added the £25billion hole in bank finances discovered by the Bank of England last week could see mortgage approvals fall further if banks were forced to shore up their capital positions.
Elsewhere, Howard Sears, managing director of venture capital firm Astuta, said the figures ‘lay bare the gulf between the banks' rhetoric and the reality’.
Mr Sears added: ‘The banks claim they are ready and willing to lend. But the fact remains the conventional credit pipeline for businesses is badly blocked. This cannot just be explained away by falling demand for credit from businesses'.
Daily Mail
