UK monetary statistics for September are much better than they look on first inspection. The Bank of England's preferred broad money measure – M4 excluding "intermediate other financial corporations" – fell sharply on the month, resulting in a third-quarter contraction of 1.7% at an annualised rate. This would seem to argue strongly in favour of a further expansion of asset purchases at next week's MPC meeting.

On closer analysis, however, the quarterly decline was entirely due to "non-intermediate" financial corporations running down their money balances. Insurance companies, pension funds, trusts and other fund managers reduced their M4 holdings by £10 billion last quarter, presumably reflecting increased confidence in financial market prospects.

M4 excluding all financial corporations, i.e. money holdings of households and non-financial companies, rose by 0.3% in September and 3.8% annualised in the third quarter – the fastest since the second quarter of 2008. This should encourage Bank policy-makers, indicating that liquidity created by official gilt-buying is filtering down to "end-users" responsible for spending decisions.

As well as increasing their sterling deposits, non-financial firms continued to add to foreign currency holdings while repaying sterling and foreign currency bank loans. Accordingly, the corporate liquidity ratio, i.e. money holdings divided by bank borrowing, rose further to a two-year high – see first chart. This ratio is a leading indicator of business investment and hiring.

Further encouraging features of the data include a pick-up in narrow money M1 and a continuing recovery in mortgage approvals for house purchase, suggesting that net mortgage lending will rise to £2 billion a month or higher by late 2009.

Meanwhile, EU Commission consumer survey results for October also released today showed a further strong improvement in confidence, which has now returned to its long-run average. Confidence has recovered much faster than in other major economies – second chart.