GB: M4 Money Supply

Fri Sep 29 03:30:00 CDT 2017

Actual Previous Revised
M/M 0.9% 0.5% 0.4%
Y//Y 4.4% 4.4%

Broad money growth picked up some momentum in August. A 0.9 percent monthly rise was more than double the marginally smaller revised 0.4 percent gain in July although annual growth only held steady at 4.4 percent, equalling its weakest mark since July 2016. M4 lending was up 0.6 percent on the month, matching its best performance since March and now stands 5.8 percent higher on the year, a 0.3 percentage point improvement over last time.

More importantly, adjusted to exclude intermediate other financial corporations, M4 expanded a solid 0.8 percent from July when it contracted 0.1 percent. This was its best monthly rate since last September and in part reflected an acceleration in adjusted lending from a 0.0 percent to a 0.5 percent yearly rate.

Elsewhere in the financial data, there were mixed signals on the housing market. Hence, while August mortgage approvals fell to 66,580 from 68,452 in July, net mortgage lending climbed from Stg3.584 billion to Stg4.041 billion. There was also a sharp advance in unsecured consumer credit (Stg1.583 billion after Stg1.166 billion) which will probably not sit too well with the BoE.

Overall, today's report should leave intact growing speculation that the BoE MPC will vote for a 25 basis point hike in Bank Rate in November.

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.