Detailed monetary statistics for December contain some glimmers of hope, suggesting the recession will hit bottom by the third quarter of 2009. In contrast to the US, however, UK monetary trends are not yet consistent with an economic recovery, in the sense of a return to trend growth or higher.

Annual rates of change of inflation-adjusted broad and narrow money have recovered from their October low, reaching the highest level since May – see first chart. This reflects slowing retail prices rather than much change in nominal money trends but is nonetheless meaningful – real money typically leads the economy by about six months. A further plunge in RPI inflation should sustain the revival in early 2009 but real growth rates would need to rise to 5-10% to signal an economic recovery.

A further positive development was a 1.8% monthly rise in broad money holdings of private non-financial corporations – the first increase since July and the largest since April 2007. The corporate liquidity ratio – money holdings divided by bank borrowing – could be bottoming, in contrast to a continued slide in the Eurozone – second chart. However, it remains very low by historical standards and usually surges ahead of recoveries.

Rises in net mortgage lending (from £830 million in November to £1.9 billion in December) and the number of mortgage approvals (from 27,000 to 31,000) are small and should be treated with caution. The increase in lending is explained by a fall in repayments – gross advances continued to slide to a seven-year low – while approvals were still down 58% from a year before.

In other news today, Japan’s industrial output plunged by 9.6% in December and – even more shockingly – manufacturers plan to slash production by a further 13% in January and February, according to a survey by the Ministry of Economy, Trade and Industry. Based on December data for the US and Japan and November numbers for other countries, G7 industrial output is now an estimated 10-11% below its February 2008 peak. With further weakness highly likely, the cumulative fall should soon challenge the 12% peak-to-trough decline in the brutal 1974-75 global recession – third chart.