April 29 (Bloomberg) -- The number of home loans approved by U.K. mortgage lenders in March increased at the fastest pace in seven months, adding to evidence that the 3 trillion-pound housing market may be recovering from a slowdown that began in the second half of 2004.

Approvals gained to 91,000 in March from a revised 86,000 in February, the Bank of England said in London today. That's above the six-month average of 84,000. Net mortgage lending grew 7 billion pounds ($13.4 billion) after increasing 7.1 billion pounds in the previous month.

``There's life out there,'' said Geoffrey Dicks, an economist at Royal Bank of Scotland Plc in London. ``The figures are surprising on the upside. This may not have immediate policy implications but it does take away some of the downside risk.''

The housing market has been bolstered by eight months of static interest rates, low unemployment and 31 quarters of uninterrupted growth since Prime Minister Tony Blair's Labour Party won power in 1997. Even so, companies are reporting that consumers, who have taken on more than a trillion pounds of debt, are more reluctant to spend amid a surge in oil prices and concern about another interest-rate increase.

The pound was little changed against the dollar at $1.9133 as of 12:43 p.m. The rate on the interest-rate futures contract maturing in December was 4.85 percent, up from yesterday's close of 4.82 percent and down from this year's high of 5.21 percent on March 2.

House Prices

Recent house price data appear to be stronger than the Bank of England has forecast. In its November Inflation Report it said that it expected a ``modest'' fall in house prices, having raised interest rates in five steps to 4.75% in August after house prices doubled in five years. At its April meeting policy makers suggested that the housing market might be stabilizing after last year's decline.

The Nationwide Building Society, the U.K.'s third largest mortgage lender, said yesterday house prices increased the most in five months in April, providing more evidence the decline in the residential property market may be bottoming out.

Consumer confidence has barely changed this year at its highest levels in 15 months, sustained by optimism about employment and the strength of the economy. Market research group GfK Martin Hamblin said today its confidence index in April measuring 0 in April, up from a low of minus 7 in September.

Low Unemployment

Unemployment remains the second lowest in the Group of Seven industrial nations after Japan and interest rates, according to latest figures released by the U.K. government. Unemployment in the three months through February was 4.8 percent, according to the International Labor Organization. That compares with France's 9.8 percent, Germany's 9.7 percent and 5.4 percent in the U.S. in February.

The $2.1 trillion British economy has expanded for 51 consecutive quarters, with growth outpacing that of the 12 nations sharing the euro every quarter since the start of 2001. The Bank of England predicts growth of 2.7 percent this year, compared with 2 percent the European Commission expects for the euro region.

Deputy Governor Rachel Lomax said Feb. 24 that ``temporary'' weakness in consumer spending is the only thing stopping the bank from raising rates for a sixth time since November 2003. The bank says consumer spending is the main ``downside risk'' to its inflation and growth forecasts.

The higher level of consumer confidence this year runs counter to the official data and U.K. company reports of depressed spending on the High Street.

Consumer Spending

On April 21 the government reported that retail sales unexpectedly fell in March and since then companies such as home- improvement retailer Kingfisher Plc, the country's largest carpet seller, Carpetright Plc, and Whitbread Plc, which operates restaurants, bars and fitness centers, have reported lower profit on weaker consumption.

The Bank of England said net consumer credit grew 1.9 billion pounds in March, in line with the six-month average and up from a revised 1.6 billion pounds in February. Credit card borrowing grew 785 million pounds, up from 773 million the previous month.

Economists predicted net consumer credit would increase to 1.7 billion pounds in March, according to the median of 26 forecasts in a Bloomberg survey on April 22.

To contact the reporter on this story: Gonzalo Vina in London at gvina@bloomberg.net.

Last Updated: April 29, 2005 08:18 EDT