Today’s stronger services purchasing managers’ survey for April is further evidence in favour of the “monetarist” forecast here of solid UK economic growth in 2013, reflecting the lagged impact of faster real money supply expansion.

Monetarist optimism contrasts with “creditist” pessimism, based on the idea that a pick-up in bank lending is a precondition of a stronger economy. This notion, however, is at odds with historical evidence that, while money leads the economic cycle, credit is a coincident or lagging indicator. In the US, the Conference Board includes bank business loans and consumer credit in its lagging economic index.

This lagging relationship suggests that bank lending will revive as growth continues to strengthen during 2013. There are already hopeful signs, such as a rise in sterling unused credit facilities in the six months to March,  the first such increase since 2007 – see chart. A credit pick-up, in turn, would provide additional support for monetary expansion.

The authorities, of course, will claim that a recovery in bank credit reflects the success of the funding for lending scheme and will try to argue that this recovery is driving a stronger economy, rather than vice versa.

The monetary foundations for a sustainable economic recovery have been laid. The Bank of England should avoid further policy experimentation and focus on achieving its inflation target while allowing banks to operate in a stable regulatory environment.