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British money supply growth

strong, bank loans up

LONDON: Britain's M4 money supply showed continued strong growth in March, the Bank of England said on Monday, and lending by banks and building societies increased, suggesting the housing market was picking up.

Independent economists said the figures would make it more difficult for Chancellor of the Exchequer Kenneth Clarke to justify cutting interest rates further in the run-up to the next general election, which must be held by May 1997.

The Bank of England said M4, a broad measure of money supply growth, grew 1.2 percent in March from the previous month, giving an unchanged year-on-year rate of 10.1 percent.

This was the fifth month in a row in which M4 -- comprising notes and coins in circulation, personal and commercial bank deposits and certificates of deposit -- grew by more than the government's three to nine percent monitoring range.

Although economists said special factors such as corporate takeovers and the launch of a new "repo" (sale and repurchase) market in government bonds had distorted the figures, they could nevertheless be a warning of future inflation.

"You have to acknowledge that there are special factors involved, but if M4 continues to stay above the monitoring range it makes for an environment where it is more difficult to cut rates," said Stuart Weatherby, UK economist at Morgan Stanley.

Clarke has cut interest rates three times since December to their present 6.0 percent level.

Alex Garrard, an economist at UBS in London, said: "Robust growth in monetary aggregates...continues to give indications of higher private spending growth and inflation to come."

The Building Societies Association (BSA) said net new mortgage approvals rose to 3.76 billion pounds ($5.69 billion) in March from 2.87 billion in February. Net advances for house purchases were at their highest level since June last year.

The figures were further evidence that the depressed housing sector was finally beginning to pick up, analysts said, which could provide a significant boost to the "feelgood factor" in this nation of home-owners.

"These figures, along with other housing market data, confirm that the market has stabilised and this is consistent with the expectation that there will be a modest upturn in the next quarter as reductions in tax begin to take effect," said Peter Williams, head of research at the BSA.

Separately, the British Bankers' Association said total sterling lending by major banks to the private sector rose by a seasonally adjusted 4.35 billion pounds in March.

"The large increase was due in part to substantial demand for funds from companies within the financial sector," said Tim Sweeney, director general of the BBA.

"Elsewhere, the modest strengthening in borrowing by manufacturing industry seen over the last few months was mantained, whilst the increase in mortgage lending remained close to the recent monthly average."

Other figures released on Monday by the Credit Card Research Group suggested consumers were beginning to spend more freely.

Credit and debit card expenditure rose 23 percent to over six billion pounds in March.

"Spending on credit and debit cards showed its strongest growth since the summer...adding weight to reports that consumers' confidence is returning," the research group said.-Reuter