August 30, 2018 / 1:00 PM / 8 months ago

UPDATE 1-UK consumer lending growth slows to weakest since Nov 2015 - BoE

    * UK consumer lending growth slows to 8.5 pct yy in July
    * Mortgage approvals undershoot economists' forecasts
    * Foreign investors' gilt holdings fall by most since 1982

 (Adds detail on gilt sales, analyst reaction)
    By David Milliken and Kylie MacLellan
    LONDON, Aug 30 (Reuters) - British consumers increased their
borrowing at the weakest pace in nearly three years last month,
and foreign holdings of British government debt fell by a record
amount, Bank of England data showed on Thursday.
    Twinned with a small fall in mortgage approvals, the
consumer borrowing figures are likely to fuel concerns of a soft
economy ahead of Brexit, while the net gilt sales may add to
worries about the funding of Britain's current account deficit.
    Foreign investors' holdings of UK gilts fell by 17.2 billion
pounds ($22.3 billion) in July, up sharply from 1.4 billion
pounds in June and the highest since records began in July 1982,
driven in part by a large volume of maturing bonds.             
    In July, Prime Minister Theresa May set out her first
detailed proposals for the terms on which Britain will leave the
European Union in March next year, prompting two of her senior
ministers to resign.
    "This (fall) underlines the importance of managing the UK's
exit from the EU as smoothly as possible, especially given the
on-going need to help finance the UK's current account deficit,"
Jefferies economist David Owen wrote in a note to clients.
    Annual consumer credit growth slowed to 8.5 percent in July
from 8.8 percent in June, the weakest since November 2015.
    In month-on-month terms, net consumer lending rose by 817
million pounds, down from 1.521 billion in June and below all
forecasts in a Reuters poll of economists.
    "July's data reinforces the impression that consumers are
currently relatively cautious in their borrowing while lenders
have certainly become warier about advancing unsecured credit,"
said Howard Archer, economist at consultants EY Item Club.
    Despite a recent fillip from unusually hot weather and the
soccer World Cup, British consumer spending growth has slowed
since 2016 due to higher inflation and limited wage growth.
    Mortgage approvals for house purchases softened to 64,768
from 65,374, slightly below economists' forecasts of a dip to
65,000 in a Reuters poll.
    Last week industry body UK Finance reported a fall in the
number of approvals for house purchase in July, though gross
mortgage lending increased as existing home-owners sought to
lock in cheaper interest rates before the BoE raised its main
rate in August.             
    British house price growth has slowed this year, mostly due
to falling prices in much of central London, where demand has
been hit by higher purchase taxes on expensive homes and reduced
foreign investor appetite since 2016's Brexit vote.
    On Wednesday a Reuters poll of housing market analysts
showed that on average they saw a nearly one in three chance of
a significant correction in the British capital's property
market before the end of 2019, though their central scenario was
for a much smaller fall in prices.             
 ($1 = 0.7682 pounds)

 (Editing by Andrew Bolton)
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