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Consumer Borrowing Boom Fuels Debt Worries

Lending to consumers jumped last month by the largest amount since before the financial crisis.

Bank of England figures showed consumer credit, covering personal loans, overdrafts and credit cards, surged by more than £1.2bn in March.

It was also the biggest jump seen since February 2008, with the growth in borrowing averaging £900m over the previous six months.

The vast majority of the money went on loans and overdrafts.

Separate figures showed mortgage approvals were down slightly.

The Bank said 61,341 mortgage approvals - with a collective value of £10.2bn - were made to home buyers in March, marking a 0.3% fall compared with the previous month.

It can be partly explained by a widely reported lack of homes for sale and worries among some buyers about the outcome of the General Election .

Low inflation and a recovery in wage growth are believed to have boosted confidence in the consumer credit market though consumer groups have raised fears that people are borrowing more to cover mounting debts.

According to financial information website Moneyfacts, average personal loan rates fell to a record low in February this year as the prospect of a rise in the base rate of interest, set by the Bank of England, also faded.

But Howard Archer, chief UK and European economist at IHS Global Insight, suggested an upswing in borrowing may not be sustainable.

He said: "March's sharp rise will likely fuel concern that consumers will pile up debt again to fund spending.

"Hopefully, higher employment, extended very low inflation and rising earnings growth will ease the pressure on many households' financial positions over the coming months and reduce their need to borrow."

Total outstanding unsecured debt remains some £40bn below the peak achieved in September 2008 when UK consumers collectively owed £208bn alongside their mortgages.