Not too much money around


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.



  1. Andyvan
    May 1, 2014

    Good excuse for the BOE not to raise rates. If they do the alleged improvement in government finances might all be spent on increasing interest payments. The fact that they’ve destroyed savings and penalized the prudent with low rates for years counts for nothing in this funny money economy. All that matters is that the money go round continues so that our political and financial elites get their fat pay offs.

    1. formula57
      May 1, 2014

      Interest rates worldwide cannot rise until preparations have been made for the consequences to too many banks of admitting and dealing with the fact that they face not a liquidity problem but a solvency problem. At that time, zombie banks that cannot do business can at long last be wound up and the prospect of a return to normality for the rest of us can be given some impetus.

  2. Iain Gill
    May 1, 2014

    I think you live in a different country to me sometimes John. I just don’t see it like this.

    Reply I just give you the numbers. What is your disagreement?

    1. Jennifer A
      May 1, 2014

      Reply to reply: House prices (especially in London) are a worry. The commercial banks are creating funny money again.

      (Around 15% of London buyers on above 4x income loans – enough to turn the mood if they end up in a distressed condition.)

      1. Jennifer A
        May 2, 2014

        I’m also worried about young people.

        Three months of a good wage (say £20k a year) will be spent insuring the car.

        This is before we mention house costs and tuition fees.

        How can this go on ?

    2. Iain Gill
      May 2, 2014

      Inflation is out of control, especially in house prices, they are now at fantasy levels way way way above their true value.
      I speak to folk in manufacturing all the time, the coal face is rather different to the dash board view you are being given.

  3. Lifelogic
    May 1, 2014

    Indeed the banks are demanding all their old cheap, low margin loans back and lend far less but charging much higher margins and fees on it. Almost any loan now seems to take them an age to agree. They are still harming the recovery by (for example) not lending on personal mortgages if the funds are to be used for a business. An expensive new kitchen, bathroom or car seems to be fine though!

    Bonkers bankers as usual.

    The new regulations and slotting & capital rules are also very damaging and poorly conceived. The banks, I assume, are lending in more sensible regimes instead.

    Why is HSBC still based in London one wonders I am sure my share would be worth more if they moved the HQ? Miliband idiocy on rent controls and tenancy laws will half kill but to let lending too. Is that what he wants?

    1. Lifelogic
      May 1, 2014

      I heard Clegg on the radio going on about the £5000 gift from other taxpayers for (the usually rich) new electric car buyers. They then pay no tax duty on the fuel, get free charging and free parking. Why? There is nothing better about electric cars in many ways they are worse than petrol ones. Usually more dangerous too (as lighter) and you probably still need a proper car in addition for long journeys and holidays..

      1. Ex-expat Colin
        May 1, 2014

        When ever I see such cars, the question always arises:

        If they use the public highway (like me and many others) why do they pay no road tax? They wear the upto 1.5 tonnes

        Thats something the Gov had no right at all in doing. A lot of us who cannot afford new cars and such have to buy 2nd hand, so how do we get in the no road tax game? Oh, take a course and become an executive —or some such BS. the lottery that hands big prize money to half of the Middle East. You won’t get a simple bathroom/kitchen fix there !

        The 2nd hand market for electric cars I reckon will be – nil. Batteries are (and always) unreliable/expensive items in this context. And they are not at all green!

        Going green (so called) is seriously criminal – whens payback please?

        1. lifelogic
          May 2, 2014

          Indeed and they are not even green the energy still has,to be produced and batteries are inefficient.

      2. Jennifer A
        May 2, 2014

        The most environmentally destructive thing one can do is buy something new – especially on subsidy or on credit.

  4. Brian Tomkinson
    May 1, 2014

    This from the Telegraph today: “A spring surge in April pushes house price growth to 11pc in a year, the first double-digit measure since 2010. House prices grew nationally by 1.2pc in April, making prices an average 10.9pc higher than a year ago, according to Britain’s biggest building society, Nationwide “. Do you really think this house price inflation is sustainable (and desirable) and not just another bubble encouraged by your Chancellor’s Help to Buy scheme, uncontrolled immigration and, of course, low interest rates?

    Reply I support tightening of mortgage requirements, which is now happening, and have also said interest rates have to go up as the recovery strengthens, as long bond rates and some mortgage rates are doing.

    1. lifelogic
      May 1, 2014

      10 year government borrowing rates are heading toward 4% + the now much larger bank margins of 2%-7% buyers should perhaps budget at these sort of levels and with Milibands economic ideas coming soon which are even a little dafter than Cameron’s.

    2. zorro
      May 1, 2014

      Reply to reply – I can vouch that mortgage requirements are certainly tightening, although perhaps over-tightening in their application rather than using common sense in assessing people’s ability to pay. I suspect that the recent stoking up of the property market will draw more people into the affordability trap if interest rates do rise, and that will hurt if it precipitates a price fall for them. All the market needs is some consistency in policy rather than inducement schemes, oh and of course an effective immigration control might help….


    3. Brian Tomkinson
      May 2, 2014

      Today’s Telegraph:
      “Surging house prices pose the single biggest threat to UK financial stability, the deputy Governor of the Bank of England has warned. “

  5. acorn
    May 1, 2014

    Don’t panic. With inflation at 1.6% and dropping; M4 dropping, we would normally be talking recession. Chart 10: Net finance raised by PNFCs, must be an outlier, wait for the quarterly numbers they are more realistic. There again, loans to the private sector have continued to drop since Osborne arrived.

    Business, stills remembers his slash and burn the public sector speeches at election time. Don’t let him make the same mistake again.

  6. margaret brandreth-j
    May 1, 2014

    This will be good when we see it in terms of wages and savings, but alas my retirement age is yet again put back.

  7. The Prangwizard
    May 1, 2014

    We all know that hundreds of thousands of new houses are to be built in southern England. Whatever we think of the reasons for that when they start coming on to the market in numbers prices will stabilise and then eventually fall. I just hope we get good quality and a variety of good design.

    1. Mark
      May 3, 2014

      Given that we already have 27.4 million homes, building a few hundred thousand more is not going to have a major impact on average occupancy or on prices. House prices are determined much more by the cost and availability of mortgage finance, and sentiment about trends in mortgage markets. That’s why prices fell sharply in 2008/9, despite much the same pressures in terms of immigration adding to population and relatively small numbers of newbuild properties.

      The cost of mortgages for many is now only linked to interest rates with a lag because of the prevalence of fixed rate deals. It’s the return of high LTV mortgages via Help to Buy that is propelling prices outside London. It will be interesting to see what impact the new mortgage lending rules have. The BoE are clearly worried that it won’t be enough to prevent more bubble, and the seeds of the next crash.

  8. Denis Cooper
    May 1, 2014

    Off-topic: I’m wary of this website, and one would really need to go back to the article in the Dutch newspaper to check exactly what he said, however:

    “Van Rompuy: If The Public Doesn’t Want EU Expansion, ‘We Do It Anyway'”

    just seems to be an admission of the truth.

    But why has our government consistently refused to ask us directly in a referendum whether we actually want some additional country to join the EU?

  9. Gary
    May 1, 2014

    Until the trend is broken it looks like an aberration:

    M4 is money supply + deposits. Perhaps the deposits part fell(almost certainly) ? I Need to check.

  10. Richard1
    May 2, 2014

    Have you noticed a leftist fest over a new book by French economist M. piketty, citing ‘inequality’ as the root of all evil and urging much higher global taxes to cure it? Despite all the evidence of the malign effect of such policies in the UK in the 3 1/2 post war decades, in the Eastern bloc prior to 1989 and elsewhere, such as Venezuela, left leaning writers and Keynesians who have been left high and dry by the recovery are lauding this work as a new insight. Although its 700 pages, no doubt packed with leftist balderdash, I fear it is your duty to read it and review it for us….

    1. Sue Ward
      May 2, 2014

      Andrew Lilico in today’s Telegraph Blog has an excellent article _ – Inequality isn’t a problem: it’s a driver of progress

      1. Richard1
        May 2, 2014

        Yes that’s a good article. Inequality is both inevitable and essential. The question is how it arises.

        1. margaret brandreth-j
          May 2, 2014

          Perhaps we shouldn’t use the term inequality and instead substitute it for difference. Standards of living , types of lifestyles appeal to those who aspire to them or actually live them. This problem is perceptual rather than written in stone. I would not like to be equal in terms of ownership of many houses or businesses as I prefer a hassle free life, so from my standpoint my life is preferable to those and therefore superior and definitely not equal or inequal. How do we define equality? Fairness of attitudes can at a pinch be inserted into the what is equality box , but in reality it is an abstract notion which only mathematical equations can clarify.

    2. petermartin2001
      May 2, 2014

      I’m not sure you’ve got it quite right. Picketty is quite unusual in that he’s considered to be an orthodox economist but saying the same kinds of things that heterodox economists have long been saying. That said, that Keynes can be considered other than mainstream by the economics profession is indeed ample evidence of a “dismal science”.

      For a slightly Post-Keynesian view see:

      1. Richard1
        May 2, 2014

        The key point that review makes is the policies advocated by Piketty of very high taxes would be a disaster as they always have been in the past and are now in France (eg). Piketty also takes it as a given that inequality is a bad thing, though the evidence suggests the opposite. It is those capitalist societies where people have been able to get rich which have delivered prosperity (and freedom).

        I think the issue is left leaning commentators are looking for a new cause. Neo-keynesianism has been shown (again) to be nonsense, so now a call for Enforcing equality through taxes is taken seriously.

        What the left can’t take is that – so long as they are not corrupt or rigged – free markets and capitalism deliver prosperity to the people whereas socialism and heavy interventionism do not.

        1. petermartin2001
          May 3, 2014

          The review actually says ” I see him [Picketty] as synonymous with the Hollande government in France; proposing taxes at a time when these would ruin the economy”

          Which is a pure Keynesian view. Its not good economics to increase taxes, especially general taxes like VAT, in the middle of a recession. If consumers have less money to spend than is needed to buy up the output of the economy how can it expand?

          True, there are those who would dismiss that argument as nonsense. They would include those who are responsible for mass unemployment in Europe, so what would they know about economics?

    3. Jennifer A
      May 2, 2014

      I’m more worried about the actors and pop stars who – all of a sudden – become global economics experts.

      Of course, equality only applies to the ‘little peepil’ and not to these unelected international ambassadors.

      One particular English leading lady of a certain age has some front. Much influence (and too many awards) bearing in mind that the only person she seems able to play is herself.

      (Etc ed)

      Global equality ? A fine idea if you holiday in Tuscany but our politicians need to be reminded that they are elected to win advantage for us.

      Anyone can just give other people’s things away. It takes no particular skill or qualification to do that .

  11. Wireworm
    May 2, 2014

    As deflation starts to take hold in the rest of the world, stoked by the massive overcapacity in Chinese manufacturing and Eurozone monetary policy, we can expect a flood of money into UK assets, especially housing and well beyond London, sending prices skywards and thereby encouraging the process further. The BoE will be powerless to prevent this, and will in any case be preoccupied with preventing non-asset prices from falling. QE will be a less than ideal instrument because of its tendency to leak into assets. And of course interest rates can’t be lowered any more.

  12. petermartin2001
    May 2, 2014

    In an ideal world bank lending would be relatively constant , in GDP terms. Booms happen when banks lend too much. The busts follow when the banks stop, or severely slow their lending.

    My money is on 2016 for the next bust. If bank lending is indeed down by ” 4.2% over twelve months ” this could be a sign that the next bust is slightly sooner than that . Maybe better to bring the next election forward a few months to be on the safe side?

  13. Terry
    May 2, 2014

    I do not have the figure for exports the North America but I do realise a strengthening Pound v the US$ will make such exports less competitive. That’s the problem when Governments interfere with the markets. QE has done nothing for us nor the USA, save for creating bubbles of liquidity and with our total National debt (Public and Private sectors) increasing by the hour, we cannot be that far away from doomsday.
    Then who will have to pay for the damage done by those blind politicians feeding their egos instead of protecting OUR country? The stupid lumpen citizens, of course.

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    June 4, 2014

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