Broad money contracted 0.2 percent on the month in February following a slightly shallower revised 0.7 percent decline in January. Annual M4 growth slumped from minus 2.1 percent to minus 3.2 percent but an unchanged level of M4 lending was enough to see its yearly growth rate edge up from minus 4.0 percent to minus 3.9 percent.
However, the weakness of the headline data once again masked a modest improvement in the underlying picture. Hence, adjusted for intermediate other financial corporations, M4 expanded 0.1 percent versus January, its fourth increase in as many months. Annualised growth over the last three months was a relatively healthy 5.0 percent, although this was still short of January's 5.5 percent print. Importantly, adjusted lending was also up, rising 0.2 percent versus the start of the year to lift its annual rate of increase from 1.8 percent to 1.9 percent.
Elsewhere in the financial figures mortgage approvals climbed from 60,707 in January to 61,760, their strongest print since August 2014. Average mortgage rates (2.78 percent) hit a new record low to provide an extra boost to new home loans and overall net secured lending was up Stg1.741 billion after a Stg1.598 billion rise last time.
Overall today's monetary statistics are quite promising. The BoE MPC would no doubt like to see faster growth of non-mortgage lending but at least the signs are that financial conditions in general are supportive of the ongoing economic recovery.
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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