Broad money was weak in June. A 0.5 percent monthly fall was the first decrease since February and matched the steepest since last September. Annual M4 growth slid from 0.5 percent to minus 0.3 percent, a 3-month low.
June's setback was led by the key private sector lending counterpart which contracted 0.4 percent versus May to steepen its annual rate of decline by 0.6 percentage points to 0.9 percent, its worst performance since March.
However, not for the first time the headline data were distorted by an erratic swing in the volatile intermediate other financial corporations category. Excluding this sector, M4 rose 0.2 percent versus mid-quarter, its eighth increase in as many months. Similarly adjusted M4 lending was also significantly stronger than the overall measure although a 0.1 percent monthly gain here saw second quarter annualised growth drop to just 0.9 percent from 3.9 percent in the January-March period.
The rest of the financial data were uniformly robust. Hence, mortgage approvals rose 2.7 percent on the month to 66,582 while mortgage lending (Stg2.615 billion) saw its highest mark since July 2008. Unsecured borrowing was also up.
Fresh record lows on mortgage rates seem to be giving housing demand a renewed boost. The BoE has previously indicated that strength here would not in itself prompt a hike in Bank Rate but, combined with still buoyant economic activity elsewhere, the latest developments will certainly agitate the MPC's hawks. That said, the monthly housing data are very volatile and June's approvals were still below their April level. Higher interest rates are in the pipeline but, while the risk is getting greater, a move before the turn of the year still looks unlikely.
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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