LONDON (MNI) – UK broad money growth has been weak recently but
that may not have much effect on spending, according to an article in
the Bank of England’s Quarterly Bulletin.
The article says that the level of broad money growth needed to
generate a given level of nominal spending is likely to be less than in
the past – with the velocity of money having picked up and likely to
stay high.
The article, by BOE economists Jonathan Bridges, Neil Rossiter and
Ryland Thomas, looks at the reasons behind recent subdued UK broad money
growth.
“The recent weakness in broad money growth may be explained
by the weakness of bank lending arising from the recession and
the impact of banking sector stabilisation. These two factors
have been offset by the positive impact of asset purchases (QE) on
broad money,” the report says.
It finds evidence that the asset purchases through the BOE’s
quantitative easing “are broadly working via the balance sheets of
households and companies to contribute to an increase in nominal
spending.”
The authors say the 1990s experience suggests “that (money)
velocity’s long-run downward trend can be interrupted for extended
periods of time” and at present economic factors are driving money
velocity up.
“These (factors) are likely to persist in the near term, suggesting
that a given rate of growth in nominal spending is likely to be
associated with weaker growth in broad money than was typically the case
before the crisis,” the paper says.
–London bureau: 44 20 7862 7491; email: drobinson@marketnews.com
[TOPICS: M$B$$$,M$$BE$]
