Money supply growing again

THE supply of broad money (M4) in the UK economy grew 0.6 per cent last month but lending remained flat, provisional data from the Bank of England showed yesterday.

M4 lending grew just 0.1 per cent in January and lending excluding the effects of securitisations stagnated. The annual growth rate of broad money lending fell to 5.1 per cent from 6.6 per cent in December.

The increase in the M4 supply of £11.6bn was was above forecasts and substantially better than the upwardly-revised 0.9 per cent contraction suffered in December.

A return to growth in headline M4, albeit at a slow pace, will cheer the Bank of England. More complete money supply data released later this month will gives estimates for the Bank’s preferred measure of broad money – M4 excluding financial activity.

In spite of the Bank of England’s £200bn quantitative easing programme, lending of broad money has not picked up substantially. However, some economists such as Henderson’s Simon Ward say that this is because of weak money demand offsetting supply.

The Bank pointed out at its quartely Inflation Report last week that money growth is stronger than it would have been in the absence of QE.

Meanwhile, separate data from the Bank showed that British firms are returning to the bond markets in order to raise much-needed finance and pay off their bank debts in a tight credit environment.

Gross and net capital issuance by firms rose for the first time in months. Firms issued a net £9.6bn worth of corporate bonds last month and net capital issuance by UK residents totalled £12.2bn.