The Bank of England’s preferred measure of money supply hit a record low last month, further boosting expectations that the Bank’s Monetary Policy Committee (MPC) will extend quantitative easing (QE) next week.

The Bank announced yesterday that it had reached its current £175 billion limit in asset purchases under its scheme of QE, but the majority of City economists expect that it will seek permission from the Treasury to extend this limit next week.

Two thirds of the 62 economists surveyed by Reuters this week said that they expected QE to be extended by at least £25 billion, with many forecasting a £50 billion increase.

Yesterday’s money supply figures came after dire gross domestic product (GDP) figures last week, which showed that the economy was still in recession in the third quarter, contrary to economists’ expectations.

The new data will be closely scrutinised by the MPC as its members gather on Wednesday to start their deliberations.

The headline measure of broad money supply rose by 0.8 per cent in September, taking the annual increase to 11.6 per cent. However, the measure that the Bank prefers, which excluded flows to non-bank financial intermediaries, fell by 0.9 per cent during the month and by a record annual rate of 1.7 per cent between July and September.

The data also showed that lending to businesses fell by 0.1 per cent in September, taking the annual decline to 3.4 per cent.

Michael Saunders, the chief economist at Citigroup, said: “The continued weakness of core M4 and of funds raised by UK corporates probably will — to the MPC — be taken as arguments in favour of extending QE.”

Alan Clarke, UK economist for BNP Paribas, said that the figures showed that QE was “still a work in progress”.

Mr Clarke said: “The Bank has not achieved what it set out to do — raise nominal spending and boost broad money. The latter should be growing at an annual rate of about 6 to 9 per cent and we are well short of that. This supports the case for an extra £50 billion of QE and a risk of more thereafter.”

Consumer credit also fell for the third consecutive month in September as people reduced their debts. Credit card borrowing fell to a nine-month low of only £79 billion in September, while there was a net repayment of £341 million on other loans and advances.

Howard Archer, chief UK and European economist for IHS Global Insight, said that the desire to repay debts could act as a drag on economic recovery. “The Bank of England has identified the need for, and desire of, consumers to improve their balance sheets as a big factor that could limit economic growth for some considerable time to come,” he said.

However, the economic gloom was alleviated slightly by better than expected figures from the housing market. Mortgage figures showed that the number of home loans approved jumped to an 18-month high in September.

A total of 56,215 home loans were approved for house purchases in September, data from the Bank of England showed. This was up from 52,970 in August, and nearly double the number approved in November last year, when the housing market almost ground to a halt.

On the up

• The GfK NOP consumer confidence index rose by three points in October, to -13, its highest since January 2008

• Confidence in the “general economy over the last 12 months” rose by 10 points, but is still low at -53. However, this is the highest it has been since April 2008

• Confidence in the “general economy over the next 12 months” showed the only drop — falling one point to +3

Explore Economics

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