Data for the Bank of England’s preferred money supply measure has just landed in our inbox:
M4 excluding intermediate OFCs fell by £14.6 billion in September, compared with a £1.4 billion increase in August. M4 lending excluding intermediate OFCs rose by £0.9 billion in September, higher than the £7.9 billion fall in August.
This is a bit of a mixed bag for BoE/QE watchers. On the one hand, M4 money supply excluding Intermediate Other Financial Corporations fell rather dramatically. On the other, M4 lending ex-IOFC showed an increase — but the annual growth rate is still at -1.4 per cent. M4 lending including IOFCs, incidentally, had an annual growth rate of just 2 per cent in September — its lowest since 1997, when the statistical series began.
As RBC Capital Markets’ Richard McGuire notes:
Meanwhile, the second est of Sep money supply released here is key owing to the first glimpse it affords of the growth of M4 excluding intermediate other financial corporations – the BoE’s favoured measure of money supply and a key input as regards judging the effectiveness of QE. On a 3mth annualised basis, this measure contracted by 1.7% in Q3. On a y/y basis, growth slipped from 3.2% to 2.3% in the 3 mths to Sep. . . . this represents the slowest rate of annual growth since this series began a little over a decade ago. With this pace clearly undershooting the 6-9% range the Bank feels would be consistent with its stated aim of pushing nominal GDP growth back up to 5%, these data further cement the odds in favour of additional unconventional policy action next week and keep the door open to the Bank exceeding our base case of a £25bn increase in the QE limit.
Of course, watching money supply data for quantitative easing hints (as we’ve done before) is not as useful as it once might have been. Money supply and lending have been overtaken by other events — notably the surprise negative growth in UK third-quarter GDP last week.
In fact, most economists now expect the BoE’s Monetary Policy Committee to vote to increase its QE programme when it meets next week.
Of 62 economists surveyed by Reuters, for instance, 43 expect more QE — with 22 looking for an additional £25bn and 21 for an additional £50bn.
That’s a stark turnaround from early October, when 40 out of 60 economists thought the BoE would not increase QE beyond £175bn.
If the Bank of England were hesitating to provide clear guidance on QE before, it looks like its mind has been made up for it.
Related links:
My King-dom for some QE guidance – FT Alphaville
Money money money ex-IOFC – FT Alphaville