Negative Broad UK Money Supply Growth = deflationary times ahead

Inflation in the UK is running at 5% in the year to October, so the following broad money supply assets/lending and liability (deposit) figures need to be seen in this light.  

Current loan growth and deposit growth is negative in real terms: in other words the velocity of money supply has increased and/or asset values are declining and debt is defaulting at the margin.   The supply of broad money, whichever way you look at it, is growing at a slower rate than the nominal growth rate of the economy.  This cannot continue for long.

The following chart shows MFI sterling liabilities to the private sector declining at an annual rate of -2.9% (quarterly growth rates are –5.26%).  Based on available records, this is the lowest historical growth rate to date (1982 to 2011): the edge of cliff.

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The following charts are taken from the Bank of England’s website:

M4 lending excluding securitisations etc. and excluding intermediate OFCs fell by -0.8% on the year to October and by a much faster -3.1% annualised quarterly rate:   

Component M4Lx lending to the household sector grew 0.8% (0.8% quarterly annualised) in the year to October, and fell –2.2% (-4.6% quarterly. annualised) for private non financial corporations and by –5.6% (-18.6% quarterly annualised) for other non intermediate financial institutions:

These are not good figures at all when considered in the context of the current financial environment.  A decline in broad money growth was indeed inevitable following on from the excess of the 1990s and the first 8 years of the noughties, but it does imply negative real economic growth if the declines are maintained.

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