LONDON: Britain’s booming construction industry and fast-rising house prices suggest the economy finished 2013 on a high but a sharp fall in business lending raises doubts about how sustainable the recovery will prove.

Friday’s lending, housing market and construction figures from the Bank of England, major mortgage lender Nationwide and data company Markit were all strong, as were Christmas sales numbers from big clothing retailer Next.

However, the central bank and other economists say Britain needs more exports and business investment to fortify growth in2014 and shake off a dependence on consumers saving less and spending more.

Britain’s economy grew at an annualised rate of more than 3 per cent in the second and third quarters of 2013, and strong fourth-quarter data could lead to the fastest full-year growth since 2007 - something quite unexpected earlier in the year.

But while the central bank on Friday showed mortgage approvals in November were their highest since January 2008 -though still well below pre-crisis levels - net lending to businesses took its biggest fall since comparable figures began in May 2011.

“Overall the picture from the data today remains consistent with a UK recovery that has been fairly household-led,” said David Tinsley, UK economist at French bank BNP Paribas. “We would look for that to change in 2014, but a risk remains that corporates will remain reluctant to borrow and invest.” Britain’s housing market has been bolstered by falling unemployment, low interest rates and government programmes to make mortgages cheaper and easier to obtain.

This in turn has lifted confidence in the construction industry, with Markit’s survey of purchasing managers showing only a slight slowdown in growth in December from November’s rate, which was the fastest since August 2007. Housing was the strongest sector, though commercial projects picked up too.

Manufacturing data released on Thursday was also robust, and a closely watched services survey due on Monday is forecast to show sustained strength.

Rising Houses Prices

Outright levels of construction remain low, however, and Nationwide said the supply of new homes was not keeping up with demand - contributing to an 8.4pc annual rise in house prices, the biggest since June 2010.

Prices rose 1.4pc in December alone, the biggest one-month jump in over four years and prices in London and Manchester are up 15 and 20pc respectively on the year.

At a national level, house prices are still 5pc below their pre-crisis peak. But this news is likely to concern critics who fear programmes such as the recently-expanded Help to Buy scheme - which led to an extra 6,000 mortgage applications between October and December - are more likely to pump up house prices than spur the building of more homes.

BoE Governor Mark Carney has warned that Britain’s housing market has the tendency to rapidly overheat, and in November the central bank reined back a scheme that offers cheap finance to banks, saying it will only help those seeking to lend more to businesses.—Reuters