Growth in private sector credit in October slipped to its lowest level since July 2005, according to the latest Central Bank figures. Caroline Maddenreports

Demand for credit amongst Irish consumers and businesses remained strong but the annual rate of increase eased back to 27.7 per cent, the lowest rate recorded in the last 15 months.

For the fifth consecutive month, growth in residential mortgage lending was outpaced by non-mortgage credit, which increased by 31.5 per cent. The adjusted annual growth rate in residential mortgages dipped slightly to 26.5 per cent in October.

This was despite €2 billion being lent to home buyers during the period.

However, the Central Bank pointed out that the rate of mortgage lending growth in October was higher than the level recorded 12 months earlier.

The annual growth rate in credit card indebtedness has fallen back from the 18 per cent recorded in June to 16.9 per cent in October.

Bloxham economist Alan McQuaid said yesterday that despite rising interest rates, Ireland's level of private sector borrowing remained strong and was approximately 2.5 times the euro-zone average.

Mr McQuaid warned that many households could find themselves overexposed in the event of a downturn in the market.

"There are already signs that the housing market has started to slow somewhat," he said.

However, he added that "if the euro continues to appreciate against the dollar, then we may see an end to the ECB's tightening cycle sooner rather than later, which could well then lead to a renewed surge in personal borrowing next year".

According to Davy economist Rossa White, the effect of the recent easing in house price growth will filter through to headline rates of private sector borrowing early next year.

He predicted that the adjusted annual rate of private sector credit growth will drop back to 20 per cent year-on-year in 2007.