Bank of England’s preferred measure of money supply fails to grow in July

THE Bank of England’s preferred measure of Britain’s broad money supply – excluding intermediate financial institutions (M4X) – failed to grow in July, raising fears among some economists that asset purchases have failed to boost the money supply sustainably.

According to figures published by the central bank yesterday, its preferred measure was flat on the month while the headline measure posted growth of 0.4 per cent compared to June.

The three-month annualised growth of the preferred measure slowed to 5.6 per cent from 6.8 per cent, taking it back below the 6-9 per cent range that Bank governor Mervyn King has said he is aiming for.

However, other economists point to the faster pace of growth in the key money supply measures since the start of the year, with M4X growing at 5.9 per cent over the past six months.

Henderson’s Simon Ward points out that within broad money non-financial companies’ holdings rose by 0.9 per cent in July, pushing annual growth up to 4 per cent.

But, unusually, households’ broad money holdings were unchanged in July. The last and only time this has happened since 1997 was in October 2008 at the height of the financial crisis. Ward attributes this lack of growth to households switching into mutual funds and borrowers repaying debts.