Broad money growth deteriorated in January. M4 fell 0.8 percent on the month, its first decline since October, to reduce annual growth from minus 1.1 percent to minus 2.2 percent.
The drop reflected a 0.9 percent monthly slide in the key private sector lending counterpart which was enough to steepen its yearly rate of fall from 3.8 percent to 4.1 percent.
However, in line with recent months, the underlying picture was rather stronger. Hence, adjusted for intermediate other financial corporations, M4 actually expanded 0.1 percent versus December and while annual growth eased a tick to 4.1 percent, the annualised quarterly rate rose 0.6 percentage points to a relatively healthy 5.5 percent, its strongest print since January 2013.
The rest of the financial data were also cautiously upbeat. In particular, with mortgage rates touching new record lows, January mortgage approvals rose to Stg60,786 from Stg60,349 in December, their highest reading since September 2014. Net consumer credit (Stg817 million) also accelerated and corporate lending (Stg1.877 billion) saw its largest increase since May 2014.
Today's figures suggest that the financial side of the economy is starting to give the support that real GDP will need if the current pace of recovery is to be sustained. The BoE should be quietly happy.
M4 is the main broad measure of money supply in the UK. The central bank's preferred measure excludes economically irrelevant financial transactions.
M4 is similar to the M3 measure used in some other countries. M4 includes everything in M2 (also called the retail component of M4) plus other deposits with an original maturity of up to five years; other claims on financial institutions such as repos and bank acceptances; debt instruments issued by financial institutions including commercial paper and bonds with a maturity of up to five years. Understanding the role of money in the economy has always been an important issue for policymakers. And the pickup in broad money growth and decline in credit spreads over the past three years together with more recent financial market turbulence has made it a particularly pertinent issue. Monetary data can potentially provide important corroborative or incremental information about the outlook for inflation. Quantitative easing is essentially a policy aimed at boosting money supply.
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