Money supply growth – is it signalling bad news or good?

With the release of the latest UK monetary statistics this week, the spotlight should shine on what has been happening to money supply since the credit crisis broke in the summer of 2007.

With the release of the latest UK monetary statistics this week, the spotlight should shine on what has been happening to money supply since the credit crisis broke in the summer of 2007. If the economic slowdown is going to be exacerbated by the credit crisis, then this is where the bad news should be evident. On the surface, there does not appear to be a problem at all with credit growth. UK money supply expanded by 15.3% in the year to October 2008, up from a rise of 12.4% in December 2007 and 10.1% in May this year. But this aggregate figure is very misleading. If the activities of other financial institutions (OFIs) are excluded, a completely different profile is revealed. On this adjusted basis, money supply rose by just 3.5% in the year to October 2008, down from 8.9% in December 2007 and 6.6% in May.
 

 

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