Unsecured personal borrowing leapt by £2.4 billion in February, the biggest rise for more than five years, as consumers rushed to borrow what they could as the credit crunch tightened its grip.

The sharper-than-expected rise in unsecured borrowing, mainly through personal loans and overdrafts rather than on credit cards, startled the City. The data has been released just a week before the Bank of England's Monetary Policy Committee will decide whether to cut or keep the UK interest rate at 5.25 per cent.

Detailed breakdowns of the Bank of England figures showed that, within the £2.4 billion total, banks' unsecured lending to consumers leapt by nearly £1.6 billion - four times January’s increase.

Some economists concluded that the rise in lending was explained by a dash for borrowed cash by consumers fearful that access to funds may dry up as the cried squeeze worsens.

“Together with the news that secured lending is getting harder and harder to come by, this could be a worrying sign of distress,” Fathom, the economic consultancy, said.

“Consumers are simply resorting to unsecured borrowing in their time of need,” said Vicky Redwood of Capital Economics. “A similar pick-up in consumer credit was seen in the United States as its own slowdown gathered steam in the middle of 2007. Either way, a rise in unsecured borrowing out of desperation would hardly be a positive development.”

Unsecured borrowing was probably given a further boost as households that might previously have raised funds by borrowing against the increased value of their homes found this avenue blocked by the drought in mortgage funding markets.

So-called mortgage equity withdrawal, which in the past has been a huge source of funds for consumers, tumbled in the final quarter of last year as the housing downturn deepened and homeowners became more wary of cashing-in on previously rising property values.

Equity withdrawal tumbled in the final three months of last year to a relatively modest £7.3 billion - equal to 3.2 per cent of households’ incomes after tax, the Bank of England also reported.

This was down sharply from £10.8 billion in the third quarter, or 4.8 per cent of households' incomes after tax, and peaks of more than 8 per cent of incomes in the earlier part of this decade. City economists had expected a figure of £9.5 billion for the fourth quarter.

The drop in equity withdrawal is a further symptom of the impact on homeowners’ sentiment from the housing downturn, and came as the Bank’s data on mortgage lending and approvals suggested that the property market remains on course for a further slowdown.

Net mortgage lending for house purchases, as opposed to remortgaging, rose by a slightly stronger than expected £7.4 billion in February, matching January’s increase.

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