By David Milliken and Liisa Tuhkanen
LONDON (Reuters) - British consumers increased their borrowing at the fastest rate since the financial crisis in October, suggesting they remain confident even as fewer mortgage approvals pointed to a further slowing of the housing market.
Lending to consumers rose by a faster-than-expected 6.4 percent, its most rapid annual pace since July 2006, the Bank of England said on Monday, helping to drive the economy despite still-weak growth in wages.
Other data on Monday showed manufacturing activity held up more than expected, as strong domestic demand offset weaker export orders.
The signs that an expected slowdown in Britain's recovery may not be severe will cheer chancellor George Osborne as he prepares to present a budget update on Wednesday -- his penultimate one before May's national election.
Data last week showed household consumption rose at its fastest pace in over four years in the three months to September, and other surveys have reported shoppers are the most willing to make big purchases since the crisis.
"Domestic demand is outweighing external headwinds," HSBC economist Elizabeth Martins said in a note to clients.
BoE policymakers have said they expect consumption to be supported over the coming year as households dip into their savings and borrow more in expectation of wage rises to come.
But although Britain's economy is enjoying some of its fastest growth in a decade, Prime Minister David Cameron has warned of global dangers ahead.
A slowing housing market may also be a worry, if an end to rapid prices rises seen earlier this year heralds broader weakness, rather than being a response to tougher regulation.
Mortgage approvals fell to their lowest since June 2013, dropping as forecast to 59,426 from September's 61,234.
Lender Nationwide said last week that mortgage approvals were running at just two thirds of historic rates, and that house prices in the three months to November increased at the slowest rate since June 2013.
Earlier this year Britain required banks to make closer checks on borrowers' ability to repay loans. The BoE has urged lenders to limit lending at high multiples of borrowers' income.
Figures for business lending released on Monday showed further falls in the net amount of credit extended to firms, though the 2.1 percent annual drop in net lending to small businesses was the smallest decline since records started in April 2012.
Business investment fell unexpectedly in the three months to September, according to last week's official data, raising some doubts about the sustainability of the recovery.
(Editing by William Schomberg and Catherine Evans)