Money Supply

Money Supply means M4, the broad gauge from the Bank of England, covering sterling money held outside MFIs. Broad money holds sterling cash, deposits and similar short-term liabilities, including repos. Credit holds sterling borrowing from UK MFIs: loans, overdrafts, securities and reverse repos. Holders are households, PNFCs, private non-financial corporations, and OFCs, other financial corporations.

Headline M4 keeps all OFCs, while M4ex, the Bank's preferred gauge, drops intermediate OFCs (IOFCs). Those firms mainly provide intermediation services to banks and building societies, not money likely to be used as a medium of exchange. M4 runs monthly from June 1982, and monthly M4ex runs from July 2009, covering sterling only. Its credit twin is M4L, sterling bank lending to the same sector, while Retail M4, also called M2, holds only cash plus advertised retail deposits.

Positions capture end-month balance sheets, with foreign currency converted at the 4pm (16:00) middle spot rate on the last working day. Final data usually appear on the 21st working day after the reference month, about four weeks later, at 09:30 London time. Each release states its next release date.

Each release also brings visual summaries, data tables, a Highs and Lows file, plus Effective interest rates, Capital Issuance and Bankstats tables. All figures remain open to revision when better data arrive, rarely beyond two years, with major errors re-released with explanation. Revisions appear at the next release.

M4 moves with short-term sterling holdings of the private sector and bank credit.

• Sterling notes and coin: physical cash held by the private sector, a small part of the gauge.
• Sterling deposits, including certificates of deposit: sight and time deposits, wholesale and retail.
• Short-term paper up to 5 years: commercial paper, bonds, FRNs and other instruments of up to five years original maturity.
• Repos: claims from sale-and-repurchase deals against marketable securities, treated as secured deposits.
• Estimated bank bills: short-term bank IOUs estimated to sit with the private sector.
• Inter-MFI difference: 35% of the sterling gap between MFIs added to financial firms deposits in wholesale M4.

The January 2023 release (published 1 March 2023) showed M4ex flow jumping to 39.8 billion pounds from negative 37.0 billion. NIOFC holdings led the move, rising to 33.7 billion from negative 35.9 billion. PNFC holdings rose to 2.6 billion from negative 4.4 billion.

M4Lex lending fell to negative 6.8 billion from 2.1 billion as NIOFC lending dropped from negative 3.1 billion to negative 7.8 billion. Non-financial firms withdrew 20.3 billion in all currencies, the record withdrawal since July 2009. House purchase approvals fell to 39,600, a fifth straight fall and the lowest since January 2009 (32,400) excluding Covid-19 onset, so split the headline.

1. Collect: Gather end-month balance sheets from UK MFIs, banks, building societies and Bank of England departments, and consolidate them.
2. Strip breaks: Remove OCVA, other changes in value from joiners, reclassifications, currency moves and write-offs. Closing levels equal opening levels plus transactions plus OCVA.
3. Find flow: Take flow, or transactions, as the change in levels minus break effects. For example, 2,520.0 minus 2,500.0 minus a 4.0 joiner leaves a 16.0 billion pound flow.
4. Grow: Divide flow by the prior level for the 1-month rate, then compound monthly rates for 3-month and 12-month rates. Here 16.0 over 2,500.0 is about 0.6% for one month, and rates publish to one decimal place.
5. Adjust: Seasonally adjust break-adjusted levels with X-13ARIMA-SEATS software, then derive flows from adjusted levels. Never adjust flows directly, and sum adjusted sectoral parts for M4 and M4ex.
6. Reconcile: Match M4 against M4L lending, net foreign-currency lending, public-sector lending, non-residents and net other assets. For M4ex add net lending to IOFCs as an extra counterpart.
7. Break-adjusted levels: Fix a reference period and compound growth factors forward and back for a comparable series.