UK survey and monetary data released today give a positive message about current economic performance and near-term prospects, suggesting no need for further monetary policy easing and questioning the scale of the MPC’s August actions (although Bank of England Governor Carney will try to claim credit for economic resilience).

Annual growth of narrow and broad money rose further in August. The Bank’s M4ex measure is now expanding at a 7.3% annual rate, the fastest since 2008. Stronger money growth has already been reflected in a pick-up in nominal GDP expansion, which may continue to rise into mid-2017, at least – see first chart.


The EU Commission’s monthly business surveys for September, meanwhile, showed further recoveries in confidence in services, retailing and construction. The surveys are mostly conducted by the CBI and the same information is included in the CBI’s expected growth indicator, which has a similar correlation with GDP changes to the more widely-watched composite PMI. Based on the EU data, the CBI indicator is likely to have recovered to a “normal” level in September – second chart.


The EU Commission’s consumer confidence measure also rebounded significantly last month, to a strong level by historical standards – third chart.


Tomorrow’s July services output data will be a key input to the preliminary third-quarter GDP estimate released in late October – see previous post. Based on current information, a quarterly GDP rise of 0.4% looks possible, far above the original Bank staff projection – at the time of the August policy easing – of no change, since revised to an increase of 0.2%.

Returning to the monetary data, the non-financial M1 and M4 measures tracked here rose solidly again in August, by 0.7% and 0.5% respectively. Six-month growth of real non-financial M1 (i.e. deflated by consumer prices) has risen over the past year, though may have peaked in June. Real non-financial M4 growth has been broadly stable. There is no suggestion in these trends of an imminent sharp economic slowdown – fourth chart.


Recent buoyancy in retail spending was signalled by a strong pick-up in six-month real household M1 growth in late 2015 / early 2016. The pace has cooled but remains solid. Real M1 growth of private non-financial corporations (PNFCs), meanwhile, has recovered from a pre-referendum slowdown, suggesting that business expansion plans are holding up better than feared.


The Bank’s M4ex broad money measure rose by only 0.1% in August but this followed a bumper 3.5% increase over the prior three months. The August rise was suppressed by a 2.2% decline in financial institutions’ M4 holdings, following a 14.1% surge over May-July. The latter increase may have partly reflected institutions’ raising precautionary cash before and immediately after the referendum. The August fall would probably have been larger but for the MPC’s decision to restart gilt purchases.