Mortgage jump dampens rate hopes

The biggest jump in mortgage lending since the peak of the housing boom yesterday provided the strongest signal yet that the housing market is reheating.

The British Bankers' Association said mortgage lending soared by £5.4bn in March, up from £4.7bn in February. It was the largest increase since June 2004, when house prices were rocketing higher by strong double digits. Figures released from the Building Societies Association showed the value of mortgage approvals - loans agreed but not yet advanced - leapt 29 per cent from a year ago to £4.672bn.

But in a sign that consumers are still nervous about their underlying wealth, the BBA data also showed consumer credit, personal loans and overdrafts and credit card lending fell in March compared with February.

This was borne out in last month's retail sales, which contributed to the weakest quarterly performance in a year. For the first three months of 2006, retail sales declined 0.7 per cent, the first fall for a year despite a 0.7 per cent month-on-month rise in March. The annual increase in March was 2.6 per cent, up from 1.6 per cent in February.

John Butler, at HSBC, said: "Retail sales have slowed since the impressive Christmas period, irrespective of the rise in house prices and housing activity. Perhaps the Bank of England's assertion that higher asset prices will drive a consumer recovery will not hold."

The figures from the Office for National Statistics showed retailers were still having to lure shoppers with big discounts because the value of retailer sales in March was just 0.1 per cent up on a year ago, putting further pressure on retail profits margins.

Separate official data showed Gordon Brown just missed his forecast for Government borrowing last year. For the fiscal year to March 2006, the Budget deficit was £37.8bn, higher than the £37.1bn the Chancellor forecast in the Budget last month.

The deficit on day-to-day spending in March was £3.5bn, but overall public sector net borrowing, which includes investment, was £7bn. The Government's net cash requirement shot up to £16bn, the highest on record.

The detailed figures showed the tax take from VAT fell last year for the first time since the tax was introduced by the then Chancellor, Anthony Barber, in 1973. It was £72.9bn, just down from £73bn in 2005.