UK broad money growth remained sluggish in August but narrow money posted another strong gain, corporate liquidity continues to improve and mortgage lending is recovering. These developments suggest that the broad money numbers understate monetary support for the economy, i.e. the velocity of circulation may now be rising.

1. M4 excluding "intermediate other financial corporations" rose by 0.2% in August, down from 0.4% in July, with the decline probably due to smaller Bank of England gilt purchases (£12 billion versus £23 billion). Incorporating downward revisions to earlier numbers, broad money grew by 4.0% annualised in the first eight months of the year.

2. By contrast, "non-interest-bearing M1" – comprising cash and interest-free current accounts – rose by 1.8% in August, giving a year-to-date annualised gain of 46%. As discussed in recent posts, narrow money strength relative to broad money is often an indicator of a pick-up in velocity. (Note: non-interest-bearing M1 includes only current accounts with no advertised interest rate, i.e. it is not distorted by the rate on some accounts being cut to zero.)

3. Private non-financial corporations' cash and deposits rose last month, with a small fall in their M4 holdings offset by a rise in foreign currency assets. With bank borrowing little changed, a foreign-currency-inclusive measure of the liquidity ratio rose further to its highest level since October 2007 – see first chart.

4. M4 lending excluding intermediate OFCs slumped by 0.5% last month but this was entirely due to financial corporations, whose borrowings are often volatile. Lending to households and private non-financial corporations rose by 0.1%.

5. Net mortgage lending recovered to £1.0 billion in August while the value of mortgage approvals for house purchase reached its highest level since April 2008. The number of approvals, however, was marginally lower than in July, indicating that the lending pick-up is weighted towards higher-value homes – second chart. Net lending remains on course to recover to about £2 billion over coming months – see earlier post.