Broad money was weak in December. A 0.5 percent monthly fall was the first decline since September and reduced annual M4 growth from 6.4 percent to 6.2 percent. However, M4 lending at least remained positive with a 0.1 percent monthly increase that left its yearly rate unchanged at 4.0 percent.
More significantly anyway, M4 adjusted to exclude intermediate other financial corporations picked up steam with a 0.5 percent monthly rise that boosted its annual growth rate by a tidy 0.5 percentage points to a very respectable 7.2 percent. Similarly adjusted lending also strengthened, posting a 0.3 percent advance from November to lift its yearly gain by a tick to 6.2 percent, a 3-month high.
Elsewhere in the financial data, consumer credit slowed from Stg1.929 billion in November to Stg1.039 billion but mortgage approvals edged higher (67,900 after 67,460) and mortgage lending was similarly firmer (Stg3.80 billion after Stg3.10 billion).
Overall the financial picture remains quite robust and continues to offer few pointers to the near-term downturn in consumer spending that the more pessimistic members of the anti-Brexit camp still anticipate soon.
M4 is the Bank of England's main broad measure of money supply. There is no target for M4 and in practice the central bank tends to follow an adjusted measure that excludes intermediate other financial corporations in order to get a handle on current underlying trends. The M4 private sector lending counterpart is the most closely watched aspect of the report.
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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