UK monetary trends remain solid, casting doubt on forecasts of an imminent economic slowdown – the consensus projection is for GDP growth to fall from 3.1% in 2014 to 2.6% in 2015, according to the Treasury’s monthly survey.
The preferred narrow and broad aggregates here are M1 and M4 excluding financial sector deposits*. Six-month growth of real non-financial M1 has moderated since end-2013 but remains strong by historical standards. Real non-financial M4 expansion returned to the top of its recent range last month – see first chart.
The second chart shows a breakdown of real non-financial M1 growth between households and private non-financial corporations (PNFCs). Real PNFC M1, in particular, has given good forecasting signals in recent years: for example, its six-month change turned negative in late 2007 ahead of the 2008-09 recession and dropped sharply in 2010 ahead of the 2011-12 “double dip” scare. Growth has rebounded after a modest decline in early 2014, suggesting solid prospects for business investment and hiring.
*Financial sector deposits are volatile and contain less information about near-term economic prospects.
