The broad money supply comprises monetary instruments of varying liquidity, ranging from physical cash and current accounts to time deposits and bank bonds with a term of several years. A “Divisia” monetary aggregate attempts to measure the “transactions services” provided by the broad money stock by applying weights to the various components, with these weights inversely related to interest earned (on the assumption that a higher interest rate is offered to compensate for illiquidity).

The Bank of England’s UK Divisia indices are ignored by both private and official economists but are monitored here for confirmation of signals from the preferred M1 and M4ex aggregates. Real (i.e. CPI-adjusted) Divisia money has foreshadowed swings in the economy in recent years and has accelerated strongly in 2012, with six-month growth in the less-volatile non-financial measure at its highest since 2007, before the recession – see chart. The message is clear – consensus gloom about UK economic prospects is wildly exaggerated and data should continue to surprise positively in late 2012 and early 2013, to an extent that even media perma-bears will be hard-pressed to deny.