GB: M4 Money Supply

Thu Mar 29 03:30:00 CDT 2018

Actual Previous
M/M -0.3% 1.5%
Y//Y 4.1% 4.3%

Broad money contracted in February. A 0.3 percent monthly decline only dented January's unrevised 1.5 percent bounce but still means that M3 has fallen in two of the last three months. Annual growth was 4.1 percent, down from 4.3 percent last time.

M4 lending was also weak, dipping 0.1 percent versus the start of the year. This left annual growth flat at 3.8 percent, equalling its lowest reading since October 2017.

Adjusted to exclude intermediate other financial corporations, the picture was somewhat brighter with M4 flat on the month for a 4.5 percent yearly rate (even then a 4-month low). However, similarly adjusted, M4 lending was still 0.1 percent weaker than in January, its second successive drop, and, at 3.8 percent, its annual growth rate was 0.6 percentage points short of January's mark.

Elsewhere in the financial data, at 63,910 February mortgage approvals gave back a large chunk of January's 9.6 percent spike. However, net mortgage lending was a little firmer at Stg3.718 billion and consumer credit (Stg1.647 billion) also above its mark at the start of the year (Stg1.328 billion).

In sum, the money data are mixed but probably in keeping with a subdued housing market and positive, but relatively sluggish, overall 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.