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GBP M4 Money Supply m/m, Oct 29, 2024

M4 Money Supply m/m: UK's Money Supply Grows, But Inflation Concerns Remain

The latest data released by the Bank of England on October 29, 2024, revealed a monthly increase of 0.6% in the M4 Money Supply, exceeding the forecast of 0.1%. This indicates a rise in the total quantity of domestic currency in circulation and held in banks, suggesting a potential increase in economic activity. However, the impact of this growth on the GBP is considered low due to pre-existing concerns about inflation.

Understanding the M4 Money Supply

The M4 Money Supply, measured as a month-on-month (m/m) percentage change, reflects the total amount of money circulating within the UK economy. It encompasses all forms of currency, including cash, demand deposits (checking accounts), and time deposits (savings accounts). This metric is a key indicator of economic activity, as changes in the money supply directly impact spending, investment, and ultimately, inflation.

How the M4 Money Supply Affects the GBP

Traders closely monitor the M4 Money Supply because of its direct correlation with interest rates. In the early stages of an economic cycle, a growing money supply can stimulate spending and investment, driving economic growth. However, as the cycle progresses, an expanding money supply can contribute to inflation, potentially eroding the purchasing power of the currency.

In the current context, the latest M4 Money Supply data suggests increased economic activity. However, the impact on the GBP is tempered by the existing concern about inflation. The 0.6% increase, while exceeding the forecast, is a relatively low figure. Additionally, the previous reading of -0.1% indicates a slight decline in the money supply in the preceding month.

Looking Ahead: What to Expect in the Next Release

The M4 Money Supply is released monthly by the Bank of England, typically around 30 days after the end of the reporting month. The next release is scheduled for November 29, 2024.

Traders will be closely watching for further insights into the UK's monetary environment. A continued increase in the M4 Money Supply could reinforce the narrative of expanding economic activity, potentially supporting the GBP. Conversely, a significant decline in the money supply could signal weakening economic prospects and put downward pressure on the currency.

Key Takeaways

  • The latest M4 Money Supply data shows a modest increase in the total quantity of money in circulation, suggesting a potential rise in economic activity.
  • Despite the increase, the impact on the GBP is considered low due to pre-existing concerns about inflation.
  • Traders will closely monitor future releases of the M4 Money Supply to gauge the direction of UK monetary policy and its potential impact on the GBP.

Important Notes:

  • The Bank of England transitioned its M4 Money Supply reporting from a preliminary/final format to a single release in November 2010.
  • The M4 Money Supply data is a valuable tool for understanding the UK economy's trajectory, but it should be considered in conjunction with other economic indicators.