Money Supply to UK Economy Increases at Slower Rate Reports Bank of England
Image ©Pound Sterling Live 2015.
The Bank of England (BoE) has reported in a monthly release that the flow of money into the UK economy grew by 0.1% in December.
The monthly M4 Money Supply data came in below analyst expectations as markets had expected an increase of 0.5%.
The news helped keep the British pound (GBP) at suppressed levels against the euro and US dollar.
There was one upside surprise in the data set though; Mortgage Approvals (Dec) came in at 60.28K, marginally beating expectations for a reading of 59.00K.
While the figures missed expectations the data confirms the existence of “tentatively encouraging signs that lending flows are finally beginning to strengthen and are providing some timely support to the economic recovery,” says Samuel Tombs at Capital Economics.
Rob Wood, chief UK economist at Berenberg told clients that while the supply of credit was not excessive there were, “increasing signs that the long period of credit retrenchment by firms and households is over”.
Wood said:
“If anything, that growth rate is too strong for comfort. Still, households cut back on unsecured credit considerably through the crisis meaning there is no cause for worry yet.”
EU Inflation Falls Further, But Euro Exchange Rates Rise
The euro has meanwhile ignored fresh signs that inflation in the Eurozone continues to decline.
CPI (YoY) (Jan) read at -0.6%, analysts had predicted a decline to -0.5%.
The euro has however made gains against both the US dollar and pound sterling in the wake of the data which tells us that markets are being driven by short-covering technical action.
“The EUR has made significant gains against the GBP, CAD, and AUD over the last 24 hours with excessive positioning taking its toll. These moves are seen as retracements in a mature trend, rather than any sudden desire to be long EUR in a QE environment,” says Sean Lee at ForexTell.
The longer-term picture will however remain pressured as Dennis de Jong, managing director at UFX.com tells us:
"Mario Draghi has many worries at the moment, not least the implementation of his bond buying programme, but he won't be too concerned by a further slide into deflation as shown by ECB figures today.
"The surprisingly poor data from Germany yesterday only reinforces the urgent need for the ECB’s plan to be implemented.
“Core inflation has remained largely stable, with falling energy prices the main reason for poor results. However, the crunch meetings with the new Greek government means the future of the eurozone economies is far from certain."
