The Bank of England has released revised M4 data for May on Monday. The findings show that non-financial corporation holdings of M4 fell by £2bn in May, while M4 lending to private non-financial corporations fell by £0.3bn in the same month.
According to economist Philip Shaw at Investec the data is somewhat disappointing as far as the success of quantitative easing is concerned. As he explains:
So far, QE has not resulted in the extra bank liquidity filtering through to households and companies. Although QE should work through additional channels, it is difficult to see a sustained recovery unless credit conditions improve.
He goes on:
In summary, while today’s figures do not represent a huge cause for concern, they are nonetheless disappointing. Although QE only started in early March, one might have hoped for more positive signs and the figures show that the extra liquidity pumped into the banking sector is not yet filtering through to households and company bank balances. Nor is it being reflected in higher lending volumes. There are a number of channels through which QE should support the economy, but one wonders how a sustainable recovery will get off the ground unless credit conditions improve over the next few months. If anything this tends to support the view that the MPC will sanction more QE in the not too distant future.
Howard Archer at IHS Global Insight, meanwhile, is hardly any more optimistic. He concludes (his emphasis):
This suggests that banks are still reticent in their lending to companies. It is also consistent with the Bank of England’s Trends in Lending report for June, which showed that net lending to business remained very weak in May after April saw a negative net flow which was the largest since mid-2000. The survey also revealed that gross mortgage lending and unsecured net lending flows remained weak in May. The main positive news was that “there are some indications that mortgage availability has increased over the past month.”
The latest data and survey evidence therefore suggest that the various policy measures undertaken by both the Bank of England and the government, including Quantitative Easing, are yet to feed through to have a major beneficial impact on lending. This is worrying for recovery prospects and reinforces belief that the Bank of England may feel compelled to further extend its quantitative easing programme, despite recent improved economic data and survey evidence.
We guess that means more QE may be on its way then irrespective of rising inflation concerns.
Related links:
An end to Britain’s QE – FT Alphaville
Inflation and the QE exit strategy, an update from the BoE – FT Alphaville
Get your index-linked gilts here while you can! – FT Alphaville