BRITAIN’S money supply is growing at its fastest rate for 16 years, the Bank of England revealed, as mortgage approvals return to boom levels and consumers start to borrow more on credit cards again.

Annual growth in M4, the broad money measure that includes bank lending, reached 14.5 per cent in September, up from 13.7 per cent three months earlier. The surge comes only a week before the Bank’s Monetary Policy Committee (MPC) meets to consider a new Inflation Report and decide whether to raise interest rates for the first time since August.

The MPC ignored money supply for the first eight years of its existence. In recent months, however, some members seem to have become anxious that the relationship between money growth and inflation will reassert itself.

Money growth in September seems to have been driven by the housing market. Loans were approved for £30.3 billion of mortgages for 295,000 people, the highest since the housing boom 30 months ago.

The increase reflects an even stronger rise in house purchases. Mortgages agreed for people buying homes rose to £16.9 billion for 126,000 people, up from a six-month average of £15.6 billion for 117,000 people. Remortgaging of existing homes was lower.

A survey from Hometrack, released over the weekend, suggested that prices recorded by estate agents had grown at their fastest annual rate for two years in October. The rise appears to have been fuelled by approvals for house purchase loans over the previous quarter, suggesting that price inflation will continue. Buyers appear to have taken little notice of the August rise in official interest rates to 4.75 per cent. Ahead of next week’s expected rise to 5 per cent, home loans are available from high street lenders at 4.8 per cent, fixed for two years, and 5.1 per cent, fixed for five years, well below standard borrowing rates.

Consumers appear to have regained their confidence in the jobs market and economic stability. This persuaded shoppers to ratchet up their credit cards in September after a period of running down balances. Credit card debt rose by £365 million in September after the biggest drop to date of £283 million in August.

Housing prices are also being driven by regional shortages, huge bonus payments in the City and and demand for buy-to-let properties to accommodate migrant workers.

SLIPPERY SLOPE

3.3 million were waiting for house prices to fall

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