Mortgage lending slumps in soaking wet month

Consumer lending, such as credit card borrowing, held up relatively well, but house purchase activity fell to its lowest in one and a half years and headline money supply figures showed their biggest annual drop since records began in 1983.

Last week, official data showed that economic output in the second quarter of 2012 suffered its biggest fall since early 2009, as one-off effects compounded the misery faced by an economy already mired in recession and hurt by the euro zone debt crisis and public spending cuts.

The Bank said mortgage approvals fell to 44,192 in June, down from 50,544 in May, the lowest reading since December 2010 and well below analysts’ forecast of a reading of 49,000.

The Bank noted that its figures did not adjust for two extra public holidays that fell in June to mark the Queen’s Diamond Jubilee.

Net mortgage lending showed a similar pattern, contracting by £355m, the sharpest drop since December 2010.

Consumer credit rose by £635m in June, slightly more than the £400m rise economists had forecast, but this was not enough to stop overall lending showing its weakest growth since July 2010.

Nonetheless, this rate of credit growth is well below the pace seen before the financial crisis, and the Bank and the Government have announced a raft of measures in recent weeks to encourage banks to lend more cheaply.

The Bank also decided last month to expand its programme of Government bond purchases by an extra £50bn, spread over the next four months, and economists see no change to this policy when Bank officials meet later this week.

Before the 2008 financial crisis, monthly mortgage approvals ran at around 90,000, but the number of home sales has slumped since then and the property market has ceased to be a major driver of consumer spending.

The Bank’s preferred gauge of money supply, M4, grew by 3.5 per cent on the year in June after a 3.0 percent rise in May.

But the headline figure for M4 dropped by 5.2 percent on the year, the sharpest fall since monthly records began.