Today’s figures for UK manufacturing were good, showing a strengthening recovery. That came as no surprise, as I have been arguing for some time the economy is now performing well.
What was more surprising was the sharp fall in the money supply as measured by M4. Far from there being an emerging inflationary bubble from too much credit, M4 lending was down by £47bn on the month, and by 4.2% over twelve months. Mortgage advances were down on the month, and total lending to individuals was up by just 1.6% over twelve months.
There is no sign in these figures of an unsustainable boom about to end through too much credit and inflation. The further rise in the pound on the back of this good news to $1.69 makes the Bank’s decision to raise interest rates a bit more difficult, as a stronger pound is tightening the economy along with the money position.