There is much to consider about the UK economy right now as we get updated on both economic sentiment and money supply data. Before we narrow down to the UK situation there was an intriguing view on the importance of money supply last night from Madame Le Pen. She seems to be suggesting that the French people as individual’s could switch back to the French France whilst businesses could use the Euro ( she seemed also to confuse the Euro with the Ecu). So how would they be paid wages and at what exchange rate? I guess there would be a boom in shops which do foreign exchange transactions as you could hardly have a fixed exchange rate! Oh well……

Meanwhile on Tuesday there was a meeting to celebrate 20 years of Bank of England independence. It has not got much publicity presumably on the grounds that so many think that there is little to actually celebrate. Even the heavily pro establishment Financial Times reports in such a fashion.

The Bank of England will be sorely tested as the guardian of Britain’s economic and financial stability in another crisis, the architects of the current system have warned.

Indeed there was an implied criticism of the current Governor Mark Carney.

Nick Macpherson, Gordon Brown’s private secretary in 1997 and later the most senior civil servant at the Treasury, said that appointing capable governors was a particular problem.

That sentence is like something I read in Yes Prime Minister 30 years ago as i marvel one more time at its insight and humour. When Sir Frank Gordon is asked about appointing a Governor who is both honest and intelligent he replies.

Although an innovation, it should certainly be tried….

There was also another reverse for Charlotte Hogg ( who apparently has now left rather than working her notice as was the claimed plan and thanks for pointing this out) who you may recall claimed there was no groupthink at the Bank of England.

“There was a terrible tendency towards groupthink,” said Kate Barker, who sat on the bank’s Monetary Policy Committee for nine years. “That the BoE emerged from the crisis with more power I think is very surprising.”

Also this from Rupert Harrison seems to contradict the official view that the FPC is “vigilant”.

Giving the Financial Policy Committee an explicit mandate to secure stability was extremely important, he told the audience: “If there is another financial crisis, we will know who to blame.”

The best reply suggest that the Bank of England may be the cause rather than the solution to the next financial crisis. Ooops!

Would that be the crisis precipitated by the BoE extreme interest rate policy and experimental QE program? ( Neil at Home)

Money Supply

This is something that the Bank of England really gave a shove to last August. We got another £60 billion of UK Gilt purchases, £10 billion of Corporate Bond purchases as well as £57.5 billion so far of the bank subsidy called the Term Funding Scheme. Oh and a cut in Bank Rate below the supposedly emergency level of 0.5%. So what is happening?

Broad money, M4 excluding intermediate other financial corporations, increased by £10.1 billion in March (Table A), with positive flows for all sectors.

This means that it grew by 0.5% on the month and 6.7% on a year before. If we take a broad sweep of the situation the Bank of England increased the annual growth rate from ~4% to ~7%. The old rule of thumb for this is to take GDP growth off this to get an idea of inflationary pressure so if we subtract 2% from that we are left with inflation heading above 4%. The inflation measure used for this was the Retail Price Index which is currently running at an annual rate of increase of 3.1%.

Unsecured credit

This continues on its own merry way as you can see.

The flow of consumer credit was in line with its recent average in March, at £1.6 billion

That is a very neutral way of describing quite a surge is it not? The monthly rate of growth was 0.8% and the annual and 3 monthly growth rates were 10.2%. So we see that the Bank of England has created quite a boom in unsecured credit about which it tells us it is being “vigilant”. In case you are wondering there is now some £197.4 billion of it.

In terms of a break down we see that credit card debt is rising at an annual rate of 8.6% with other loans and advances growing at 11%. For comparison purposes let us remind ourselves of real wage growth which is now around 0% and GDP or economic growth which is around 2%.

Looking at it another way I have written many times about the impact of easy UK monetary policy on mortgage lending. If we look back to the start of the Funding for Lending Scheme then the  annual growth rate of the “other loans and advances” part of unsecured credit was  3% as opposed to the current 11%.

Mortgage lending

It took a fair bit of effort but the Bank of England finally got net mortgage lending positive and now here is the state of play.

Lending secured on dwellings rose by £3.1 billion in March, similar to the recent average

It would be higher but the net figure is reduced by the scale of monthly repayments which are usually of the order of £17 billion.


There is much to consider here as we see that the UK monetary taps remain wide open. In the past the usual response to this is a combination of higher inflation and often a lower exchange-rate. Sounds familiar doesn’t it? The exact situation for the value of the UK Pound £ is complex because of course there are international influences as well as the vote last June. Also movements tend to happen before a policy move as they move on expectations of it so all measurements are awkward in terms of precision.

Also there is the issue of increased indebtedness at a time of real wage stagnation. On that road they are in the “spiders web” sung about by Coldplay in the song aptly named Trouble  as how can they increase interest-rates on any scale now? If we move to growth it would appear that the UK economy has regained some momentum in the second quarter if the Markit business survey is accurate.

UK service providers experienced a sustained rebound in business activity during April, supported by the fastest upturn in new work so far in 2017…….“The upturn in the services PMI rounds off a hattrick of good news after upside surprises to both the manufacturing and construction PMIs. The three surveys collectively point to GDP growing at a rate of 0.6% at the start of the second quarter.

The Bank of England will try to bask in the credit for this but the truth is that it maybe added a little to the powerful effect of the lower UK Pound £ that was already in place but at the cost of this.

The PMI surveys also show average prices charged for goods and services rising at the fastest rate since September 2008

Let us hope that the lower trajectory for some commodity prices and especially the price of crude oil continues to help in that respect.


The chocoholics amongst you may have noticed that the price of cocoa has fallen by about 40% over the past year. Has there been any sign of cheaper chocolate or perhaps an extra Toblerone triangle?