UK monetary trends continue to give a reassuring message for economic prospects, though are less upbeat than Eurozone and US developments. Corporate liquidity, in particular, is rising fast, suggesting stronger investment and hiring after the election – providing that it delivers a stable, business-supportive government.

The favoured broad and narrow monetary aggregates here are non-financial M4 and M1, covering money holdings of households and private non-financial firms. M1 comprises notes / coin and sight deposits, with M4 adding in other deposits, repos and short-maturity bank paper. Money holdings of financial companies are volatile and less relevant for judging near-term economic prospects.

Real non-financial M1 (i.e. deflated by consumer prices) rose by a solid 3.9%, or 8.0% annualised, in the six months to March. Real non-financial M4 growth was lower but respectable at 2.8%, or 5.6% annualised. Both measures have strengthened since last summer, suggesting that the recent GDP slowdown, if confirmed, will prove temporary – see first chart.

Corporate liquidity is surging: real M4 holdings of private non-financial corporations rose by 5.7%, or 11.8% annualised, in the six months to March – the fastest since 2007, a strong year for business investment. Companies have ample resources to boost spending and expand their workforces but may be temporarily “hoarding” liquidity ahead of the election result.

Relatively sluggish household M4 growth partly reflects recent strong buying of National Savings pensioner bonds and probably has little implication for consumer spending. National Savings attracted £12.1 billion in the first quarter, a record quarterly total equivalent to 1.0% of the stock of household M4.

Monetary trends are less expansionary than in the Eurozone, where real non-financial M1 rose by 5.8%, or 12.0% annualised, in the six months to March – second chart. GDP probably grew by less than in the Eurozone in the first quarter and the UK may struggle to recapture a lead.

A caveat to the positive comments above is that recent solid real money growth owes much to temporarily low inflation. Unless nominal trends strengthen further, real money expansion will fall back during the second half as inflation rebounds, in turn implying slower economic momentum in 2016.