UK lending growth hits three-year low after car sales fall: BoE

By David Milliken and Andy Bruce

LONDON (Reuters) - British consumer borrowing rose at the slowest rate in more than three years last month after new car sales fell by a fifth, the Bank of England said on Monday, in news likely to raise concern about the economy's strength.

Consumer spending has been a major factor in the British economy's somewhat faster-than-expected growth since June 2016's Brexit vote, despite a jump in inflation that has eroded household incomes.

The BoE data showed that year-on-year growth in unsecured consumer lending slowed to 7.7 percent in September from 8.2 percent in August, the weakest pace since June 2015.

And comparing the three months to September with the previous three months, credit growth was the weakest since January 2014, up just 5.5 percent on an annualised basis.

"New borrowing for car finance fell sharply, consistent with very weak car registration numbers in September, while other borrowing, such as personal loans and overdrafts, was robust," the central bank said.

Auto industry data earlier this month showed that British new car registrations dropped by 20.5 percent on the year in September, one of the key selling months because of a twice-yearly change in licence plate numbers.

While part of the decline reflects disruption as environmental concern leads car buyers to turn away from diesel vehicles, some surveys have also shown more general consumer caution in the run-up to Brexit.

"Even allowing for the impact of substantially weakened car sales due to special factors, September's data reinforces the impression that consumer are currently relatively cautious in their borrowing while lenders have certainly become warier about advancing unsecured credit," economist Howard Archer of consultants EY ITEM Club said.

The Bank of England said this month it expected consumer credit growth to slow further in response to a tightening of loan conditions by lenders earlier in the year.

Finance minister Philip Hammond is expected to warn lawmakers in his annual budget later on Monday that he will only be able to ease off on austerity if they agree a deal to leave the European Union in an orderly way in March.

There was a little immediate market reaction to Monday's lending data, which painted a slightly more positive picture of the housing market.

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.

The number of mortgages approved for house purchase dropped less than economists had expected in a Reuters poll, falling to 65,269 from 66,101 in August. Net mortgage lending beat forecasts, rising by 3.9 billion pounds ($5 billion) versus a forecast 3 billion-pound increase.

Some analysts expect Hammond to open a consultation into higher property purchase taxes for foreign buyers in Monday's budget, on top of existing surcharges for second homes and investment properties.

($1 = 0.7794 pounds)

(Editing by Larry King)