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Money, credit and asset prices

8 In the United Kingdom, household borrowing continued to grow strongly. The twelve-month growth rate of M4 lending to households had increased to just under 14% in October; the corresponding rate of growth of total secured lending to individuals had risen to just under 13% ­ the highest rate since 1990; and mortgage equity withdrawal in the third quarter was provisionally estimated to have been 6.9% of personal disposable income, up from 5.9% in the second quarter. This was consistent with the continued rise in consumers' confidence about their own financial situation and the generally robust consumption picture. Household deposits were also growing quite rapidly, at just over 8% in the year to October. This might in part reflect as yet unspent funds realised from equity withdrawn from the housing market. 9 Housing market developments had not changed substantially since the Committee's previous meeting. It was noted that the main upward pressure on house prices now seemed to be coming from the lower end of the market. The pressure had moved away from London and the South East to other regions. This might in part reflect a shift of buy-to-let demand from the London market, where returns were increasingly reported to be disappointing, to other areas of the country. But the evidence did not support any one explanation of recent house price movements, and there was substantial local variation in price pressures. 10 The Chancellor's Pre-Budget Report had projected higher levels of Government borrowing this year, and in both 2003 and 2004, than had been expected at the time of the main Budget statement earlier in the year. This was unsurprising, given the slower-than-expected pace of growth this year, and the Committee noted that the fiscal rules were still expected to be comfortably met. There did not, therefore, seem to be any immediate pressure on the Government to change its fiscal stance, which remained one which would, helpfully, support domestic demand over the next year or two. 11 Two longer-term issues were noted. First, a significant part of the unexpected weakness in government revenues was attributed to the current depressed level of profitability in the financial sector. This might well (as was implied by the Treasury's fiscal projections) be reversed, as output returned to trend. But it was also possible that profitability in that sector had been exceptionally high in the late 1990s, so that a part of the recent fall in tax revenues from this sector might persist. The assumptions underlying the Pre-Budget Report were more cautious than those in the Budget itself, as