Explanatory Notes - Divisia money
OVERVIEW
AVAILABILITY
SOURCES
DEFINITIONS
VALUATION AND BREAKS
FURTHER INFORMATION
The Divisia index for money weights the growth rate of each of the M4 component assets according to the extent to which they provide transaction services. These weights are a function of the interest rate on the asset, such that assets with a higher interest rate are assumed to provide fewer transaction services.
Data are available quarterly from 1977 Q1 and monthly from September 1997. All components are seasonally adjusted. Levels are non break-adjusted whereas flows are break-adjusted. Publication of data will usually occur on the 21st working day following the end of the reporting period in Table A6.1 in Monetary and Financial Statistics (Bankstats) or subject to the published schedule of releases.
The sources for Divisia are the same as those for the Sectoral breakdown:
- UK-resident banks; a sample of UK-resident banks report data directly to the Bank of England on the form BE. Around 150 banks with eligible liabilities (BT£46) in excess of £400mn (positive or negative), or private sector holdings (BT items £2H and £3H or £29D) in excess of £1bn report data on a monthly basis. All data are reported in sterling, with foreign currency data converted to sterling at the middle spot sterling exchange rate at 4pm on the last working day of the month.
- UK-resident building societies; From January 2008, data from building societies are collected on the same basis as for UK-resident banks, on the forms BT and BE on a monthly basis (see the article on Transition of building society statistical reporting in the January 2008 edition of Monetary and Financial Statistics). Prior to this, data for building societies were collected by the Financial Services Authority. These figures were based on a sample of societies, which were grossed up to achieve full coverage of the building society population in the published data
All data are subject to revision if and when new information becomes available. For more information on revisions practices see the Explanatory Note on revisions, available here.
Divisia money is a weighted average of the growth rates of the M4 component assets. The components are weighted according to their usefulness for making transactions, which is proxied by the user cost of holding these components. The weights are two-period moving averages. The user cost is measured by the difference between the interest rate paid on component balances and a benchmark rate, which should in turn be the rate paid on balances with no transactions value. The calculation for Divisia is done in house at the sectoral and aggregate level.
From February 2005, the data series for Divisia money have been calculated using a method described in the article ‘A new measure of Divisia money’ in the January 2005 Monetary and Financial Statistics. Data for 1977 to 2004 calculated under the method previously used are available on request.
Definitions for the sectors can be found under definitions for Table A4 ‘Sectoral analysis of M4 and M4 lending’ of Monetary and Financial Statistics.
Notes and coin
Consists of sterling notes and coin in circulation outside the Bank of England. PNFCs’ holdings are subtracted from the known total, with the residual divided between the household sector and OFCs on an estimated basis.
Non interest-bearing deposits
From January 2008, non interest-bearing deposits at building societies are included in this series. Previously, only non interest-bearing deposits at banks were included.
This series consists of credit balances on customers’ accounts where interest is not payable.
Interest-bearing bank sight deposits
This series consists of credit balances on customers’ accounts where the entire balance is accessible without penalty, either on demand or by close of business on the day following that on which the deposit was made, and where interest is payable.
Interest-bearing bank time deposits
Those deposits where part of the balance is not accessible without penalty, either on demand or by close of business on the day following that on which the deposit was made, and where interest is payable
Interest-bearing Building Society deposits
From January 2008 onwards, building society household sector deposits are broken down into interest-bearing sight and interest-bearing time deposits in a similar way to the data from banks (noted above).
Instant access deposits
Building society instant access deposits are defined as deposits that are available within 0-7 days, accounts from which withdrawals incur no penalty as long as 7 days’ notice has been given, and deposits from which immediate withdrawals can be made at 7 days’ interest penalty or less.
Notice and term deposits
Building society notice accounts require a notice period of between 8 and 90 days to withdraw funds without penalty or are accounts from which immediate withdrawals can be made at a penalty of at least one month’s interest. Term accounts are those accounts that require investment for a fixed term during which no withdrawals can be made or from which withdrawals are permitted by giving at least three months’ notice.
Tax-exempt special savings accounts (TESSAs)
Until April 2004, TESSAs were treated as a separate component of Divisia with its own rate of return. Bank time deposits and building society notice and term deposits held by the household sector were adjusted for the availability of TESSAs by subtracting the respective published levels of TESSAs from these components. Proceeds from maturing TESSAs deposited in TESSA-only ISAs (TOISAs) were captured within the ISAs component.
From April 1999, it was not possible to open new TESSA accounts, though deposits continued to be made until these accounts matured five years after opening. From April 2004, therefore, there are no deposits recorded in TESSA accounts.
Individual savings accounts (ISAs)
From January 2008 onwards, both bank and building society time deposits held by the household sector are adjusted for ISAs by subtracting the respective published levels of ISAs from these components.
Between the introduction of ISAs in 1999 Q2 and the end of 2007, bank time deposits and building societies instant access deposits held by the household sector were adjusted for ISAs by subtracting the respective published levels of ISAs from these components.Rates of return
Bank deposits: household sector and corporate sector
From January 1999, rates of return on deposits held with banks by the household sector and the corporate sector are effective interest rates (see notes to Table G1.4 for further details). Prior to January 1999, rates of return were averages of quoted rates. Monthly rates are gross of tax, averaged over the month. Quarterly rates are calculated as averages of monthly rates. Interest rates for household sector time deposits exclude rates on TESSAs and cash ISAs.
Cash ISA and TESSA rates
Rates of return for cash ISAs and TESSAs have been calculated as a weighted average of ISA/TESSA interest rates offered by the largest deposit takers. Rates of return for cash ISAs for banks and building societies are compiled separately (as shown in Table G1.3) but are presented as a weighted average of the two in this presentation.
Building society deposits: household sector
From January 2008, rates of return on deposits by the household sector held with building societies are calculated from data reported on the form ER.. Prior to this, data were provided by the Financial Services Authority (FSA). They were weighted averages of gross interest rates received by savers, derived from a monthly return of all building societies. Quarterly rates are calculated as averages of monthly rates. Rates exclude those on TESSAs and cash ISAs.
Building society deposits: corporate sector
Rates of return on deposits by the corporate sector held with building societies are assumed to be similar to the rates on time deposits by the corporate sector held with banks.
Benchmark asset
The Divisia index uses an envelope approach, which assumes that, within the household sector and the corporate sector, the benchmark asset is the component of M4 that pays the highest interest rate after tax is taken into consideration.
For more details on the theory behind the Bank’s Divisia money series, see the article ‘Divisia measures of money’ in the May 1993 Quarterly Bulletin (pages 240-55), and 'A new measure of Divisia money' in the Spring 2005 Quarterly Bulletin.
In constructing Divisia, the rates of return, except those on TESSAs and ISAs, are adjusted for tax using:
- the basic rate of income tax rate for interest-bearing household sector deposits
- the corporate tax rate for corporate interest-bearing deposits.
The index is also adjusted for the changes in the population of the bank and building society sectors (see notes to Table A5 for more detail) by incorporating the relevant break-adjusted flows for bank sight and time deposits and building society deposits.
Adjustments are also made to take account of the re-classification of the Channel Islands and the Isle of Man as non- resident following the Banking Statistics Review of September 1997. For further details see the article ‘Outcome of the review of banking statistics, including effects on monetary and other banking statistics’ in the September 1997 edition of this publication (pages 1-7).
Prior to September 1997, sectoral data for a short period were reported monthly on the Q1(M) form. Prior to July 1996, sectoral data were reported to the Bank on a quarterly basis only on the Q1 form.
- O’Connor, P (2008), ‘Transition of building society statistical reporting’, Monetary and Financial Statistics, January.
- Hancock, M (2005) ‘Divisia Money’ Bank of England Quarterly Bulletin, Spring, pages 39-46.
- Hancock, M (2005) ‘A new measure of Divisia money’ Monetary and Financial Statistics, January pages 13-14.
- Hancock, M (2005) ‘Divisia Money’ Bank of England Quarterly Bulletin, Spring, pages 39-46.
- Thorp, J (1997) ‘Outcome of the review of banking statistics, including effects on monetary and other banking statistics’ Monetary and Financial Statistics, September pages 1-7.
- Janssen, N (1996), ‘The demand for Divisia money’, Bank of England Quarterly Bulletin, November, pages 405–09.
- Fisher, P, Hudson, S and Pradhan, M (1993), ‘Divisia measures of money’, Bank of England Quarterly Bulletin, May, pages 240–55.
