Slowing bank lending and retail sales are the latest evidence that the economy has begun to cool. Data released yesterday showed that retail sales were up 7.7 per cent in January while credit growth grew by 18.2 per cent in February.

The value of retail sales was significantly below the highs of around 22 per cent recorded last May. In volume terms, retail sales rose by 4.6 per cent compared with January 2000, the lowest growth since 1997, and well below a high of 18 per cent last May, according to the Central Statistics Office.

However, if cars are excluded from the index, the picture is very different. According to Dr Dan McLaughlin, chief economist at Bank of Ireland, excluding cars, retail sales rose by 10 per cent in January from a year earlier, compared with 6.2 per cent in December.

Car sales have fallen off dramatically following the huge surge last year with the introduction of 00-registered vehicles. In the three months from October to December 2000, car sales had already begun to fall of, declining 5.9 per cent compared with the preceding three months.

On this three-month basis, which gives a more stable indication of underlying trends, the overall November to January value figure shows a 0.5 per cent increase compared with the three months to the end of December 2000.

December is the latest month for which a detailed breakdown is available. The largest increase in the volume of sales was in pharmaceutical, medical and cosmetic articles, which were up 8.3 per cent. Textiles and clothing were up 5.5 per cent and furniture and lighting up 3.1 per cent.

By contrast, hardware, paints and glass fell 1.1 per cent and department stores saw a fall of 1.7 per cent.

Falling car sales may also have contributed to the weakening demand for credit, according to Dr McLaughlin. Private sector lending rose by £786 million or 0.9 per cent in February from January - an annual growth rate of 18.2 per cent compared with 20.9 per cent in January. It had been running at more than 26 per cent last August.

Mortgage lending growth has also slowed, falling to 22.9 per cent in February from 24.1 per cent in January, according to the latest data from the Central bank. This is the fifth consecutive monthly decline.

It is possible that the slowdown in credit is due to a tightening up by institutions, perhaps following warning letters from the Central Bank.

A spokesman confirmed yesterday that the Commission would be examining closely the Government's plans to increase day-to-day spending by 21 per cent in 2001.