GB: M4 Money Supply

Tue Jan 30 03:30:00 CST 2018

Actual Previous Revised
M/M -0.6% 0.1% 0.2%
Y//Y 3.7% 3.7% 3.8%

M4 fell sharply in December. A 0.6 percent monthly contraction was the first fall since September but, with broad money also declining steeply in December 2016, only shaved a tick off the annual growth rate which now stands at 3.7 percent. M4 lending held up much better, edging 0.1 percent higher versus November to lift its yearly growth rate from 5.5 percent to 5.6 percent.

In fact, adjusted to exclude intermediate other financial corporations, the underlying picture was much brighter with M4 up 0.4 percent on the month (4.8 percent on the year), its fifth consecutive advance. Similarly-adjusted M4 lending rose a still stronger monthly 0.6 percent. This put its annual rate at 4.4 percent, a 7-month high.

Elsewhere in the financial data, a 5.7 percent monthly decline in mortgage approvals was ominous for the housing market in 2018 although net mortgage lending (Stg3.683 billion after Stg3.736 billion) was little changed. Overall net consumer credit (Stg1.520 billion after Stg1.497 billion) was a little firmer.

The December M4 report is mixed. The housing figures are volatile though clearly consistent with a sluggish pace of activity last month but otherwise monetary developments would seem to be in keeping with continued moderate economic growth.

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.