UK monetary glimmers, election adding to near-term risks
Simon Ward
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UK money measures are showing signs of recovery but earlier weakness suggests a stagnant or contracting economy through Q1 2020.
Six-month growth rates of non-financial M1 and M4 rose further in September, reaching the highest levels since October 2018 and November 2017 respectively. The increase in real terms was magnified by a fall in six-month consumer price inflation – see first chart.
As elsewhere, monetary acceleration probably reflects declines in market interest rates through August. The recent back-up in yields threatens to stall the recovery.
Real narrow money growth remains weak by global standards, suggesting GDP underperformance – second chart.
The focus of concern here has been a contraction in corporate real money holdings earlier in 2019, suggesting that firms would cut jobs and investment. This scenario appears to be playing out: employment fell in the latest three months while last week’s CBI industrial survey reported a further collapse in investment intentions – third chart.
Corporate real M1 has resumed modest growth but is far from giving a positive signal – fourth chart. Recession avoidance depends on consumer resilience. Household real M1 growth has ticked up recently but labour market weakness and election-related policy uncertainty may drag on near-term spending.
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