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When the Bank of England last week revealed a sharp and unexpected jump in unsecured loans, economists sat up and took notice.

The jump in February to £2.5bn ($4.9bn) – the highest level for unsecured loans in five years – at a time of falling mortgage lending, falling home equity withdrawal and weak credit-card lending, suggested that a safety valve of some sort might just have been blown.

Downbeat data add pressure for rate cut - Apr-06MPC minutes lift hope of April rate cut - Mar-20Central banks weigh on pound and dollar - Mar-19Interactive graphic: MPC decisions charted - Mar-19Full minutes from the last MPC meeting - Mar-19MPC leaves UK rates on hold at 5.25% - Mar-06Of course, the data for one month could easily be subject to reversal in a few weeks’ time. Nevertheless, some economists believed the figures were significant enough to warrant further study as they, in some ways, confirmed anecdotal evidence that the clampdown on credit was becoming painful for consumers.

Capital Economics posed the question this way: “Without wishing to sound too dramatic, is it a sign of strength and optimism, or an indication of pain and desperation?”

In other words, do the lending data suggest some version of the game “whack-a-mole”, where beating down demand in one place makes it pop up in another?

Paul Dales of Capital said that the “eye-catching” surge in borrowing was related to the near-total withdrawal of mortgage loans of more than 100 per cent of the property value, known as a 100 per cent loan to value (LTV) ratio. Those homeowners coming to the end of fixed rates on such mortgages have been unable to find a lender willing to extend a new loan. To avoid the sharp rise that comes with switching to a lender’s standard variable rate – two percentage points and more above fixed rates – many are seeking unsecured borrowing to top them up to the point where they qualify for a loan with a 90 per cent LTV. “People with a 100 per cent LTV mortgage now have no choice,” Mr Dales said.

With new mortgage approvals in February at 73,000 – close to a 12-and-a-half year low – it is clear that lenders have become more conservative.

Establishing the reasons behind the sudden jump in borrowing is important as the rise could be a signal that, despite a slowing economy, consumers are rushing to spend.

Tim Moss, head of lending at Mymoneysupermarket.com, a website that helps consumers find financial deals, said post-Christmas credit-card billings were unusually late in January this year which might account for strong loan demand in February. That is good news for the economy but leans against future interest rate cuts.

Mr Moss said unsecured lending might be the only option for some borrowers. “There is still demand to explore the possibility of unsecured lending,” he said, although the fear of being rejected – a reaction that can hurt a ­borrower’s credit score – is deterring some.

Moreover, interest rates on unsecured loans have not responded to the quarter-point cut in Bank rates since last year. “Some of our best deals now wouldn’t have made it into the top 10 last year,” Mr Mosa said. Among the 10 best deals available for a £5,000 loan, the average rate is 7.7 per cent against 6.5 per cent last year.

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