Fears among business leaders in Birmingham that the Bank of England will hold off cutting interests rates next month were heightened yesterday by the increase in consumer spending.
Hopes had risen that the Bank's Monetary Policy Committee would respond to calls from Birmingham Chamber of Commerce and Industry and others. During May, credit card lending rose by £800 million, more than twice the previous month's increase of £358 million, according to BoE figures.
Britons now collectively owe a total of £55.69 billion on their plastic. Charlotte Ritchie, policy executive at the BCI, said: "We had hoped the Bank would reduce interest rates from 4.75 per cent to give a boost to all business, particularly those in the manufacturing and export sectors.
"A reduction in the cost of borrowing and establishing more favourable exchange rates for exporters would have given the beleaguered manufacturers in the Midlands a shot in the arm.
"We fear that these new figures will convince the Bank to at least keep interest rates unchanged. An increase would be disastrous for manufacturing and we urge the Bank not to overreact. We hope that the Bank will at last show concern for the business sector instead of allowing domestic spending to dictate their economic strategy."
Louise Beard, chief executive of Coventry and Warwickshire Chamber of Commerce, is still hopeful that the next rate move will be down when the MPC meets next week. She said: "Next week may be a tad too early for a cut but the Bank's inflation report is out in August and that could well be the time. It is believed that the report will show the figure at staying below two per cent in the medium term and that would well give other members of the committee the impetus they need to cut rates.
"Trading is very tight for many of our members and especially those in manufacturing. They are experiencing severe global competition and high material costs therefore any cut in the base rate would be most welcome."
The Bank said the rate at which people were taking on credit card debt was higher than the average monthly rise during the previous six months, although the jump was still below January's surge of £1.1 billion.
The figures come just days after the Bank warned in its Financial Stability Review that the record levels of debt people had taken on could be a threat to the economy.
Total unsecured lending, including credit cards, overdrafts and loans, rose by £1.85 billion during May, up from £1.34 billion in April.
Mortgage lending was slightly more subdued compared with the previous month, with banks and building societies advancing a total of £22.44 billion, down from £22.75 billion.
But once redemptions and repayments were taken into account, outstanding mortgage debt rose by £7.96 billion in May, the highest figure since August last year.
Geoffrey Dicks, of Royal Bank of Scotland, said: "The obvious interpretation of the data is that the housing market is getting back to a normal level of activity and that this will ultimately be reflected in a more normal level of house price inflation.
"The demands of the high street, where May's 0.1 per cent increase in retail sales sits uneasily with an extra £800 million of credit card borrowing, may argue otherwise, but as far as the housing market is concerned there is no case for an immediate rate cut."
HSBC said the number of people inquiring about mortgages, loans and equity release products in its branches during the three months to the end of June was slightly higher than during the previous quarter. But at the same time it said inquiries were running nearly 14 per cent lower than they were during June 2004.
