The Bank of England’s preferred broad money measure, M4 excluding intermediate other financial corporations, rose by only 0.1% in February, following an identical January gain. This sluggishness probably reflects savers switching from bank deposits into National Savings pensioner bonds* and does not signal deteriorating economic prospects. National Savings attracted £3.2 billion in February following £6.9 billion in January, versus an average monthly inflow in 2014 of £500 million. This suggests that about £9 billion of the bonds were sold in January / February, equivalent to 0.5% of the stock of broad money.
National Savings competition also explains weak retail sales of unit trusts and OEICs so far this year – £0.8 billion last month and £0.3 billion in January versus a monthly average of £1.7 billion in 2014.
Narrow money has been less affected by the pensioner bond sales. Non-financial M1, comprising physical cash and sight deposits of households and private non-financial corporations, rose by 0.4% in February after a 0.5% January increase. Six-month growth, however, has fallen significantly since 2013 and is well below the current Eurozone pace – see first chart.
This slowdown, fortunately, has been largely matched by a (temporary) fall in consumer price momentum – second chart. Real narrow money growth, therefore, remains solid and has rebounded recently, suggesting respectable economic expansion through 2015 – third chart.
In other UK news, GDP growth in 2014 has been revised up from 2.6% to 2.8%, or 2.9% excluding the North Sea. Meanwhile, aggregate wages and salaries – i.e. the product of average pay and the number of employee jobs – rose by 5.3% in the year to the fourth quarter, the largest annual gain since a 5.8% increase in the fourth quarter of 2007. Adjusted for consumer price inflation (0.9% in the fourth quarter), growth was the strongest since June 2001, when the Blair government was reelected with another landslide majority.
*In terms of the monetary counterparts (i.e. the arithmetic linking changes in broad money to other elements of the banking system’s balance sheet), the bond sales contributed to public sector “overfunding” and a consequent repayment of bank borrowing.
