UK monetary trends are stable and consistent with a near-term revival in economic growth after the recent mild slowdown.

The preferred narrow and broad aggregates here are M1 and M4 excluding money holdings of financial corporations*. Both measures rose by 0.5% in April, leaving six-month growth rates little changed at 3.1% and 2.1% respectively, or 6.3% and 4.2% annualised – see first chart.

Economic prospects are related to real rather than nominal money trends. Reflecting the impact of commodity price weakness and sterling strength on consumer prices, six-month growth of real non-financial M1 and M4 is higher than during the second half of 2014, supporting the expectation of faster economic expansion through late 2015 – second chart.

An inflation revival later in 2015 will squeeze real money growth unless nominal trends strengthen. The latter scenario, however, is plausible: deposit / lending rates have fallen further, “excess” liquidity in the Eurozone may be flowing into the UK and bank lending is firming. Foreign investors bought £26.8 billion of gilts over February-April following the ECB’s QE announcement in January, the largest three-month sum since December 2013. Six-month growth of bank lending to households and non-financial firms rose to 1.1% in April, or 2.2% annualised, the fastest since December 2008 – first chart.

*M1 comprises notes / coin and sight deposits, with M4 adding in other deposits, repos and short-maturity bank paper. Money holdings of financial corporations are volatile and less relevant for judging near-term economic prospects.