Week 40, 2011: UK Money Supply

Summary: The Bank of England announced this week that they would carry out a further session of quantitative easing (QE) in an attempt to stimulate growth. We look back at how the money supply has grown over the past thirty years.

What does the chart show? The chart shows the M4 measure of money supply, which is the broadest definition of the money supply available. It includes the private sector's holdings of sterling notes, coins, deposits, bonds and bank bills. The red line, measured against the left hand axis, shows the seasonally adjusted total monthly money supply in billions of pounds. The blue line, measured against the right hand axis, shows the percentage change on the same month in the previous year.

Why is the chart interesting? The chart shows in a general sense how much the money supply has grown over the past twenty to thirty years; and you can see the effect of the previous round of QE in 2009/2010. It also shows how the money supply is experiencing sustained contraction for the first time over the whole period.

The Bank of England will be hoping that the jump in the money supply that will come about as a result of the latest round of QE will boost lagging growth figures without providing long lasting inflation.