THE Bank of England’s preferred measure of broad money (M4) rose by 0.3 per cent in February despite fears that the end of quantitative easing would spell further weakness.
Bank data yesterday showed that M4, excluding money holdings of non-bank financial intermediaries, expanded last month after two successive months of contraction – but the three-month annualised growth rate slipped back into negative territory.
The overall broad money supply rose by just 0.2 per cent in February, following a similar rise in January. The annual growth rate continued to slow and fell from five per cent to 3.9 per cent.
However, broad money holdings by private non-financial corporations rose 0.5 per cent, putting annual growth at 4.6 per cent. Lending of M4 to these companies fell by 0.8 per cent, prompting worries of a renewed drop in net lending to businesses.
Henderson’s chief economist Simon Ward pointed out that corporate credit contraction reflects demand weakness much more than inadequate supply.
He said: “Retained earnings are running well ahead of capital spending so firms must either increase their holdings of financial assets or repay debt. Credit demand should revive as investment and hiring recover.”
Other economists were less positive. RBC Capital Markets’ senior fixed income strategist Richard McGuire said that evidence of QE’s effectiveness remains elusive more than a year after it was introduced.