HOPES of a recovery in consumer confidence were given a further boost
yesterday by the latest Bank of England figures on the narrow measure of
the money supply, M0, which covers notes and coins in circulation.
Narrow money rose by a provisional seasonally-adjusted 0.7% in
February, taking the year-on-year growth rate up from 4.1% to 4.8%. It
was the second month in succession that the upper limit of the
Treasury's target range of 1% to 4% had been breached.
Economists suggested that the steady upturn in narrow money pointed to
further growth in retail sales after the 1.6% jump in February. Whether
this turns out to be the case will not be officially known until the day
after the March 16 Budget.
The buoyancy of narrow money contrasts with weakness in broad M4
money. Its year-on-year growth rate fell from 3.7% in December to 3.2%
in January, well below the Treasury's 4% to 8% monitoring range. Within
this the figure for bank and building society lending to the private
sector was revised upwards from a provisional #4100m to #4400m, against
a fall of #100m in December.
The authorities believe that the recent sharp fall in interest rates
has caused a swing to M0 assets. The Treasury has suggested that this
could have added up to 2% to the M0 growth rate, but the Bank of England
puts the figure at a much more credible 0.5%.
Some economists believe that these encouraging pointers explain why
the Chancellor of the Exchequer, Norman Lamont, has lost no opportunity
in recent weeks to put a damper on hopes of a further reduction in
interest rates. It is more likely that he has been concerned to avoid
further weakness in sterling.
Speculation that the Bundesbank would lower its key interest rates
after Thursday's council meeting helped the pound rally strongly against
the Deutschmark yesterday. After the G7 summit of finance ministers in
London at the weekend Lamont again denied he had any intention of
cutting UK interest rates.
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