Rise in savings underlines shoppers' caution: Increase coincides with slight lift in mortgage lending by banks and building societies and surprise fall in retail sales

HOPES that high street shoppers may give a lift to spending were dented yesterday by the sharpest rise in savings at building societies for two years. The banking figures also showed that lending by banks and building societies merely recovered from its previous fall.

Building societies reported a net retail inflow of pounds 1.069bn in April, up sharply from pounds 249m in March, suggesting that consumers may have been more cautious last month.

The increase coincided with a surprising fall of 0.3 per cent in retail sales last month and indications that the rate of growth of narrow money supply, M0, may be easing.

However, the Building Societies Association said the increase could reflect marketing efforts of individual societies as well as seasonal factors, and did not represent a general trend. Mark Boleat, BSA director-general, said the inflow of savings could fall back in May.

Lending by banks and building societies increased by pounds 2.9bn in April, more than double the pounds 1.2bn average of the previous six months. But the advance followed a pounds 1.3bn fall in March, leaving the average monthly rise over the two months at pounds 800m. The British Bankers' Association yesterday questioned whether the April increase represented a genuine surge in corporate demand for bank borrowings and suggested it might be seasonal.

The public sector borrowing requirement tends to rise sharply in March and cuts private borrowing from the banks as public money flows into the economy.

The reduction in borrowings is usually followed by a bounce back in April. The association said yesterday: 'The most likely explanation for this is the exceptional size of the PSBR in March.'

The association reported that lending by banks alone over both March and April averaged pounds 733m, only slightly above the trend of the previous three months.

There was continued strong growth in mortgage lending by banks, while the BSA reported a virtually unchanged figure of pounds 2.7bn for societies. Recent BBA analysis suggests that banks have expanded market share at the expense of the societies, with an increase in fixed-rate mortgage offers.

In contrast, consumers were repaying credit while companies, with the exception of manufacturers, were also repaying loans.

Reflecting weak demand for bank and building society loans, broad money supply, M4, grew by 3.5 per cent in the year to April, down from 3.6 per cent in March. But developments in the stock market and the Euromarkets suggest that the weak demand for loans from UK banks and building societies may not reflect depressed activity. Companies are either borrowing offshore or raising capital through rights issues rather than taking on new loans.

Yesterday also brought further indications of the costs of recession when nearly 60 per cent of all the latest companies to be liquidated were found to come from the South-east.

Figures for the first three months of the year, compiled by KPMG Peat Marwick, showed that 2,031 creditors' voluntary liquidations were recorded in the South-east between January and March against a total of 3,454 for all of England and Wales.

Tim Hayward, KPMG's head of corporate recovery, said: 'The number of failures in the South-east will naturally reflect the concentration of businesses in the area, but more importantly they underline how the service sector has been hit.'