Saturday, April 12, 2008


(the percentages are annualised equivalents) Source: Bank of England


aSteve said...

I arrived here from Alice Cook's blog where you left a comment... and have discussed similar stuff on

I've been interested in this.

I noticed that M4 growth accelerated in both 1997 and further in 2003. These two years correspond to changes in fiscal policy... in 1997 RPIX inflation target was changed from under 2.5% to a symmetric 2.5% with an acceptable error margin of 1%. In 2003 RPIX was abandoned entirely and CPI was targeted at 3% with the same error margin.

These points of inflection correspond fairly accurately with HPI growth. Data from the CML (Council of Mortgage Lenders) supports this idea. In 2007 I was fairly convinced that this explained things... However, we've seen, in the past few months, mortgage lending (which I'd assumed to be greatly responsible for M4 expansion) has slowed considerably... yet M4 expansion, after a small blip has returned to the recent norm of over 12%.

I find this recent anomaly extremely puzzling. One suggestion that has been proposed is that recent M4 expansion is a technicality arising from commercial banks to return SIVs to balance sheet... and that M4 has been under-reported during the last 10 years... but I am not entirely convinced... I'd like to see further evidence. An unsubstantiated hunch is that the slowdown in funding for mortgages has been almost matched by a upturn in funding for large private investors - say, for example - hedge funds.

Primary evidence is extremely sparse.


Hi, Asteve, and welcome. You exceed my expertise here. But maybe part of the apparent anomaly is down to information delay? And what is happening with credit cards and overdrafts?

aSteve said...

Correction (Did I really make that typo error!)

CPI was targeted at 2% with the same error margin.

More reply @ Alice's Bubble blog. It's a pity these comments can't be threaded across multiple blogs, isn't it? Get it sorted, Google. ;-P