BoE: Supply of money in Britain takes an upturn

THE Bank of England’s overall measure of the money supply grew by 0.8 per cent in January, it announced yesterday.

Over 12 months total “M4” fell by 1.7 per cent, but some analysts point to signs of a pick up in the figures.

The Bank’s preferred “core” money measure – excluding intermediary non-bank financial companies – rose 0.7 per cent in the first month of the year, and was up 4.9 per cent annualised in the three months to January.

“This is above a level likely to be consistent with the two per cent inflation target over the medium term,” said Henderson economist Simon Ward.

“Governor Mervyn King has repeatedly cited sluggish broad money growth as a reason for nonchalance about the current inflation overshoot,” Ward said.

“But an increase in velocity has the same economic impact as monetary expansion – and velocity climbed 2.1 per cent in 2010, the largest annual rise since 1979.”

The upturn in the money supply was largely driven by the government sector, analysts noted.

“A breakdown reveals UK institutions to be a significant net seller of paper in January,” said David Owen, economist at Jefferies International.