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Quantitative Easing Beginning To Show In M4

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The Bank said that its preferred measure of the broad money supply – in other words money floating around the economy and in people's bank accounts – increased unexpectedly in July. M4 excluding other financial corporations rose by 0.6pc in July, while the three month annual growth rate picked up from 1.2pc to 5.3pc.

Although money growth figures are notoriously volatile, the Bank's Governor, Mervyn King, and chief economist Charlie Bean have indicated that they are putting some emphasis on these numbers as a sign of the success of quantitative easing. The economic theory is that by creating extra money and putting it into banks reserves, by buying bonds off them and other investors, the Bank can indirectly push up the amount of cash flowing around the UK, and hence boost growth.

Ideally, the Bank is aiming for M4 growth to pick up to 5pc or above to keep the economy out of recession. However, economists advised caution in reading too much into the figures.

"The avowed aim of the MPC's QE policy is to bolster the growth in money holdings of the non-financial sector," said Simon Hayes of Barclays Capital. "The sectoral money data released by the Bank of England today show a modest pick-up in deposits in July, but growth remains extremely weak.

"Prior to the financial crisis and recession, households' and PNFCs' [private sector non financial corporations'] deposits typically grew at a pace of around 8pc year on year... The MPC is unlikely to consider that current rates of money growth are consistent with a pace of growth of nominal demand that will generate on-target inflation. The Committee will wish to see deposit growth pick up significantly as economic activity recovers over the coming months."

At that rate the money supply would double in around 15 years.

I thought M4 had been growing at double digits before this crisis hit?

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