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UK money update: misleading M4ex
30 juillet 2025 par Simon Ward
UK monetary alarm bells are ringing louder.
Six-month growth of the preferred narrow money measure here – non-financial M1, comprising holdings of households and private non-financial corporations (PNFCs) – fell further in June, to just 0.1% annualised. Growth of its broad equivalent, non-financial M4, remained at 3.0%, below a 4.5% average over 2015-19, associated with beneath-target average CPI inflation – see chart 1.
Chart 1
Monetary warning signals are being ignored partly because official / consensus focus is on the Bank of England’s headline M4ex broad aggregate, which grew by 4.4% annualised in the six months to June – exactly in line with its 2015-19 average.
M4ex relative strength, however, reflects rapid expansion – by 14.1% annualised in the six months to June – of money holdings of “non-intermediate other financial corporations (OFCs)”, mainly attributable to increases in balances of securities dealers and fund managers. Such holdings are volatile and – unlike non-financial M1 / M4 – uncorrelated with future activity / prices*.
Six-month growth of M1 / M4 holdings of private non-financial corporations (PNFCs) fell further in June, to 1.4% / 0.4% annualised respectively. Household M4 growth firmed to 3.8% but M1 momentum moved into marginal contraction. The shift from sight deposits into time deposits and ISAs suggests weak spending intentions and a preference for saving – chart 2.
Chart 2
A previous post argued that falls in six-month non-financial M1 / M4 growth in April / May were partly payback for upward distortions related to portfolio adjustments before the October Budget and a front-loading of housing market activity ahead of the end of the stamp duty holiday. With such effects fading, ongoing monetary weakness is stronger evidence of overrestrictive policy.
*Correlations of the two-quarter rate of change of nominal GDP with two-quarter changes in money measures, lagged two quarters, over 1998-2019: M4ex +0.19, non-financial M4 +0.41, M4 of non-intermediate OFCs -0.08, non-financial M1 +0.65.
