Surge in consumer borrowing dampens rate hopes

Figures showing a big rise in consumer credit in November, along with an upbeat trading statement from the John Lewis group, suggested pre-Christmas reports of a slowdown on the high street were exaggerated. It is not safe yet to rule out further interest rate increases, analysts concluded. Diane Coyle, Economics Editor, gets the measure of seasonal spending.

New borrowing by consumers jumped by pounds 1.2bn in November, according to Bank of England figures yesterday. It was the biggest monthly increase since February, and undermined the widespread view that the summer spending boom is over.

Earlier figures showing slower growth in retail sales during the same month, and anecdotal evidence from stores, had fuelled hopes that there was already enough of a slowdown to persuade the Bank of England to hold off raising interest rates again. Many City economists predict at most one more rate rise, and that not before February when the economic picture will be clearer.

However, yesterday's evidence indicated that these hopes might yet prove premature.

The surprise November consumer credit rise was pounds 300m higher than the previous month's figure. It took the annual growth rate in lending up a fraction to 15.4 per cent, halting what had appeared to be a firm downward trend.

The increase was dominated by a pounds 522m rise in loans advanced by "other specialist lenders", much of which could have been linked to car sales. In 1997 these reached the highest-ever total for November.

The figures also confirmed bank and building society reports that mortgage lending was weaker at pounds 1.9bn in November compared with pounds 2.2bn the previous month. However, the annual growth rate for home loans remained unchanged at 5.9 per cent, well up from the previous year's pace of increase.

The lending details highlighted the importance of looking beyond the monthly retail sales reports. High street spending accounts for only a third of total consumer expenditure and excludes, as well as car sales, spending on items like entertainment and holidays.

In addition, retail sales are heavily distorted by seasonal patterns at this time of year. Typically, nearly a fifth of all the cash to flow through high street tills does so during December, but even within the month the timing depends on which day of the week Christmas falls.

John Lewis, the department store group, reported yesterday that its sales during the four weeks prior to Christmas were 8 per cent up on the previous year. It also said there had been a cracking start to its post-Christmas sale.

Brian O'Callaghan, director of trading, said it had been a "splendid outcome", much influenced by the strength of business on the final four days before Christmas. Many of the gloomier anecdotes emerged before Christmas week itself.

James Barty, an economist at Deutsche Morgan Grenfell, said: "You have to take figures for November, December and January as a whole". But he predicted: "Consumers have not gone back into their shells. They are still spending in a very robust way."

Simon Briscoe at Nikko Europe, one of the firmest adherents to the view that interest rates have climbed high enough, agreed yesterday that: "Consumers' appetite to take on new debt is uncomfortably strong."