Tuesday August 4, 10:51 AM
UPDATE 1-Growth in key UK money supply gauge slows in Q2 -BoE
LONDON, Aug 4 (Reuters) - Annual growth in a key component of British money supply slowed to its weakest since 1999 in the second quarter, Bank of England data showed on Tuesday, just two days before the central bank decides whether to expand
its quantitative easing programme.
M4 broad money supply growth, excluding holdings of intermediate other financial corporations, slowed to an annual rate of 3.1 percent in the second quarter of 2009 from a downwardly revised 3.8 percent in the first quarter.
The BoE has identified this subcomponent of M4 growth as a key gauge of whether its quantitative easing policy is boosting the money supply, because it strips out the volatile and sometimes inflated money holdings of firms such as clearing houses included in the overall M4 measure.
'It still shows that money growth is weak up to and including the second quarter,' said Philip Shaw, economist at Investec (LSE: INVP.L - news) .
'If I was a policymaker, I wouldn't take too much comfort from the quarterly trend, and look at the overall slowdown. The conclusion is that QE isn't boosting money growth, though it's early to be making a judgment,' he said.
When the BoE started buying billions of pounds of gilts and corporate debt with newly-created money in March, it said the aim was to boost the money supply to sustain spending and borrowing during Britain's worst recession in decades.
Before the credit crunch, M4 excluding intermediate OFCs was growing at a year-on-year rate of around 10 percent, and during the downturn it has fallen much faster than standard M4.
On a quarter-on-quarter basis, M4 holdings of intermediate OFCs grew at an annualised rate of 3.7 percent in the second quarter of 2009 -- an improvement from 3.1 percent in the first three months of the year, but below the 4.1 percent achieved in the last three months of 2009.
M4 lending to firms other than intermediate OFCs was also very weak, dropping to a year-on-year rate of 1.0 percent, its lowest in over a decade, from 2.8 percent in the first quarter.
But there was an improvement in quarter-on-quarter M4 lending growth excluding intermediate OFCs, with the annualised rate rising to 2.7 percent from 1.9 percent.
(Reporting by David Milliken, editing by Mike Peacock) Keywords: BRITAIN BANK/M4
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