Rise in the money supply gives hope UK is heading for recovery

Tim Wallace
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HEALTHY money supply figures published yesterday could point to a modest economic recovery, as households’ and non-financial companies’ holdings increased in February.

The non-financial M4 measure of money supply rose 2.3 per cent in the six months to February, Bank of England data showed.

Holdings by financial corporations fell, but have little bearing on the “real economy.”

“Broad money has picked up in both nominal and real terms, partly reflecting QE2 – based on this pick-up, the economy could surprise to the upside,” said Henderson’s Simon Ward. “Provisionally, money trends are signalling economic improvement but to an unknown extent – a revival in M1 would strengthen the case for optimism.”

That narrow money M1 measure, including cash and overnight deposits, fell 0.6 per cent in the six months to February – in part, Ward said, as a result of banks bidding more aggressively for longer-term funding, cutting household funds held in current accounts.