GB: M4 Money Supply

Thu Mar 01 03:30:00 CST 2018

Actual Previous Revised
M/M 1.5% -0.6%
Y//Y 4.3% 3.7% 3.8%

Broad money was superficially very robust at the start of the year. A monthly 1.5 percent jump in M4 put its annual growth rate at 4.3 percent, up from 3.8 percent in December and a 4-month high. However, the key M4 lending counterpart edged just 0.1 percent firmer versus December which saw its yearly rate drop from 5.6 percent to 3.8 percent, its weakest print since October 2016.

Adjusted to exclude other intermediate financial corporations, M4 rose a monthly 0.5 percent, in line with its recent trend to stand 5.1 percent higher on the year. By contrast, similarly adjusted lending contracted 0.1 percent on the month, its first decline since January last year.

Elsewhere in the financial data, mortgage approvals rebounded 9.3 percent on the month to 67,478, their highest reading in six months. The bounce here may reflect buying brought forward to beat a widely anticipated rise in Bank Rate. However, mortgage lending fell from Stg3.524 billion to Stg3.389 billion and overall net consumer credit eased from Stg1.580 billion to Stg1.357 billion.

Peering through the monthly volatility, the underlying trends in the money data appear broadly unchanged. In the main, consumer activity may have eased somewhat but probably not to the extent that would prevent higher official borrowing costs before long.

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.