Broad money was misleadingly soft in September. A 1.0 percent monthly contraction followed a slightly steeper revised 0.5 percent drop in August to lower annual M4 growth from minus 0.2 percent to minus 0.6 percent, its weakest performance since March. Lending was flat on the month and 0.1 percent down on the year after a 0.2 percent annual decline last time.
However, the underlying picture was a good deal stronger. Hence, excluding intermediate other financial corporations M4 expanded 0.7 percent versus August, its sharpest gain since December 2014. Moreover, similarly adjusted M4 lending posted a 0.6 percent monthly rise, its eleventh straight advance and enough to boost its yearly growth rate from 2.4 percent to 3.1 percent.
Meantime the rest of the financial data were generally robust too. In particular, mortgage lending rose Stg3.595 billion in September, its largest increase since April 2008. At 68,874, mortgage approvals were down from August's 70,664 mark but still comfortably above the BoE's average fourth quarter forecast of 65,000/month. There was also a very decent Stg1.261 billion rise in net consumer credit, just a touch below the Stg1.263 billion advance recorded last time.
Overall today's money data are quite upbeat should be seen as bullish enough to accommodate a respectable and sustained recovery in the UK real economy.
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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