UK mortgage lending jumps in June, business lending plunges

* Bank lending to businesses plummets in June, BoE (Shenzhen: 000725.SZ - news) data shows

* But economists say firms may be using other funding sources

* Value of mortgage lending growth hits near 7-year high (Adds detail, reaction)

By Andy Bruce and Ana da Costa

LONDON, July 29 (Reuters) - British mortgage lending picked up strongly in June, adding to signs that the housing market is regaining momentum, but a sharp drop in lending to businesses was a reminder that the economic recovery has yet to find a sounder footing.

The value of mortgage lending rose by the largest amount in almost seven years, while there was a renewed rise in mortgage approvals, Bank of England figures on Wednesday showed.

Consumer credit continued to grow strongly, according to the central bank where some policymakers may start to vote for an interest rate hike next week.

But the data also showed a 5.487 billion pound ($8.6 billion) monthly drop in bank lending to non-financial businesses -- the biggest decline since records started in May 2011, and compared with a 818 million pound increase in May.

While the lending data is often volatile, the fall could be a concern for policymakers who say business lending is key to the continued resurgence of Britain's economy.

Finance minister George Osborne said this month that he was giving a new remit to the Bank of England's Financial Policy Committee that stressed the importance of banks lending for productive investment.

The decline in business lending in June might also partly reflect how big firms are turning to types of funding other than bank lending, IHS Global Insight economist Howard Archer said, pointing to an improvement in loans for small businesses.

"It is notable that the fall in lending was concentrated in lending to larger companies, which the British Bankers' Association reported have been making use of capital market finance in preference to bank borrowing," he said.

MORTGAGE LENDING HITS SEVEN-YEAR HIGH

Mortgage approvals, which fell through most of 2014 after tighter rules on mortgage lending took effect, rose last month to 66,582 from 64,826 in May -- slightly above the Reuters poll consensus of 66,000.

Net mortgage lending, which lags approvals, rose 2.615 billion pounds in June, the biggest increase since July 2008 and comfortably beating a Reuters poll consensus of 2.05 billion pounds.

"Mortgage activity is set to continue to improve in coming months in line with better confidence," said Barclays (LSE: BARC.L - news) economist Fabrice Montagne.

The BoE said consumer credit grew by 1.22 billion pounds in June -- slightly more than expected. Consumer credit grew 7.6 percent year-on-year, the biggest rise since April 2006.

Despite only weak rises in wages for much of the past five years, Britain's economic recovery is still heavily reliant on spending by households.

A separate survey by the Confederation of British Industry showed British annual retail sales growth slowed in July, despite a big rise in clothing purchases, and is expected to weaken further next month. (Writing by Andy Bruce; Editing by Catherine Evans)