The breakdown of the traditional interbank market has resulted in a huge expansion of secured lending between banks channelled through non-bank financial intermediaries. The money holdings and borrowings of these intermediaries are included in M4 and M4 lending, which have been artificially inflated as a result.

This shift began well before the introduction of the special liquidity scheme (SLS) in April but it is reasonable to assume that most of the subsequent increase in intermediaries’ business with banks has been associated with lending secured on Treasury bills obtained under the scheme.

Between April and September M4 rose by £131 billion, of which £123 billion was accounted for by financial intermediaries. M4 grew by a further £43 billion in October, again probably largely due to intermediaries (no breakdown is available). This suggests SLS usage of about £165 billion by the end of October. This may be an underestimate, since the M4 numbers exclude business channelled through foreign-based intermediaries.

No sectoral analysis is yet available for M4 in October. However, the provisional release contains a split between “retail” and “wholesale” M4, with the retail component approximating to money holdings of households.

Inflation-adjusted retail M4 leads retail sales and overall consumer spending – see chart. Its annual growth rate fell to a new low in October, though has not yet turned negative, as it did in the early 1990s. An optimistic interpretation is that consumption is unlikely to be as weak as during the last recession. However, this is of limited comfort: spending fell in six out of seven quarters in that recession, with a peak-to-trough decline of 3.3%.