UK money pick-up continues despite QE suspension
UK monetary trends continue to support optimism about growth prospects while arguing against more QE.
The preferred broad and narrow money aggregates here are M4 and M1 excluding financial sector holdings*. Annual growth in non-financial M4 climbed further to 5.3% in January, the highest since July 2008 – see first chart. Non-financial M1 is expanding faster, partly reflecting cash moving out of term and notice accounts into sight deposits in response to a recent large fall in interest rates** – its annual growth reached 7.1% in January, the best since July 2007.
Importantly, broad money has continued to rise solidly since the Bank of England suspended QE in early November – non-financial M4 grew by an annualised 6.2% in the three months to January. This provides indirect support for the argument of a previous post that QE has had a much smaller impact on broad money than claimed by the Bank.
The recent pick-up in non-financial M4 growth has been concentrated in the company sector – stronger corporate liquidity typically encourages more investment, hiring and M&A. Non-financial companies’ sterling and foreign currency deposits at UK banks grew by an annual 7.4% in January. Corporate liquidity is rising faster in the UK than in other major economies*** – second chart.
In other UK news today, February’s manufacturing purchasing managers’ survey was disappointingly weak, with the key new orders component slumping to a six-month low, although this reportedly partly reflected disruption caused by the poor weather.
More encouragingly, new construction orders climbed by 3.4% in the fourth quarter on the back of a 10.5% third-quarter gain, suggesting that construction output will contribute positively to GDP growth during the first half – third chart.
*Financial holdings are an important determinant of asset prices but non-financial money, i.e. held by households and non-financial companies, is likely to be more closely related to immediate economic prospects. Non-financial M1 is not calculated by the Bank of England but can be constructed from published data.
**Largely reflecting the Funding for Lending Scheme – see previous post.
***Based on the latest available data – September for the US, December for Japan and January for the Eurozone.
Reader Comments (2)
From your comment Yesterday and Today's Manufacturing figures do you feel that there will still be no GDP contraction in Q1 ....can you please provide your direct yes or no opinion? Your UK optimism from Q4 2012 does not seem followed through on yet. Always a great and informative Blog. Thank you
I think the economy is growing.