M4 accelerated in March. A 0.3 percent monthly increase followed back-to-back falls in January and February and with base effects very friendly, boosted annual growth from minus 3.2 percent in mid-quarter to minus 0.6 percent, equalling its strongest reading since last March.
The headline improvement was led by a pick-up in the key lending counterpart which expanded 0.6 percent versus February for a 3-month annualised rate of minus 0.2 percent, its best performance since August 2014.
Excluding intermediate other financial corporations, the BoE's preferred measure, M4 rose 0.4 percent on the month, its tenth increase in the last year. Similarly adjusted M4 lending rose 0.6 percent from mid-quarter for a 2.9 percent annual rate, up 1.0 percentage points from last time.
Elsewhere the financial data were somewhat mixed. Hence, mortgage approvals slipped from 61,523 in February to 61,341 but consumer credit grew Stg1.242 billion after a Stg0.785 billion rise last time and secured lending climbed Stg1.829 billion after a Stg1.767 billion increase. The expansion in consumer credit was the largest since February 2008.
Overall today's money figures suggest that financial conditions are moving in the right direction to support a sustained economic recovery in 2015. However, as highlighted in the newly released April manufacturing PMI (see calendar entry), the upswing remains dangerously lopsided and far too dependent upon the consumer sector. Accordingly, today's data raise another red flag over the UK's deteriorating external finances.
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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