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Home > Statistics > Explanatory Notes - M4
 

Explanatory Notes - M4

Overview

The Broad money aggregate M4 is a measure of the quantity UK money supply.

Availability

Data are available monthly from June 1982, both seasonally adjusted and non-seasonally adjusted.

Previous measures of broad money in the UK are available from 1970 on a monthly basis. Further information about definitional changes and the introduction dates of monetary aggregates can be found in the UK monetary aggregates: main definitional changes article. Publication of final data will usually occur on the 21st working day following the end of the period or subject to the published schedule of releases in table A2.1.1 and A2.2.1 in Bankstats (Monetary and Financial Statistics) and on the Statistical interactive database. 

Sources

M4 is derived from the consolidated balance sheet of UK monetary financial institutions (MFIs). These data are currently provided by:

  • UK-resident banks; All UK-resident banks report data to the Bank of England on the form BT on a quarterly basis. Currently banks with UK private sector sterling deposits or sterling loans over £1,000mn, total assets over £3,000mn or eligible liabilities over £400mn report data on a monthly basis. Prior to September 1997 balance sheet data were reported on the BS form. A further sector breakdown of business with UK residents is provided on the form BE on a monthly basis, by UK-resident banks who report the form BT 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.
  • UK Central Bank; Data from the Bank of England Banking Department and Issue Department are collected on the same basis as for other UK-resident banks, on the forms BT and BE on a monthly basis. Prior to March 1998 the Banking Department of the Bank of England was included in the banks sector, whilst the Issue Department was included as part of central Government, and hence did not appear on the MFI consolidated balance sheet.  However, the Banking Department was part of the UK banks' sector while Issue Department's transactions with the M4 private sector (including transactions associated with its money market operations as well as the note issue) were included in broad money and its counterparts.

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.

Definitions

M4 comprises:

The M4 private sector's (i.e. the UK private sector other than monetary financial institutions (MFIs)) holdings of: 
  • sterling notes and coin;
  • sterling deposits, including certificates of deposit;
  • commercial paper, bonds, FRNs and other instruments of up to and including five years' original maturity issued by UK MFIs;
  • claims on UK MFIs arising from repos (from December 1995);
  • estimated holdings of sterling bank bills;

and

  • 35% of the sterling inter-MFI difference (added to OFC deposits, within wholesale M4). For further details please see the September 2011 Monetary and Financial Statistics article ‘Estimation and allocation methods within money and credit data’. Prior to September 2011, 95% of the domestic sterling interbank (now inter-MFI) difference was allocated to OFC deposits, the remaining 5% being allocated to transits. This followed a review of its causes (see page 101 of the June 1992 Economic Trends).

The sectoral distribution of holdings of CDs cannot be fully identified; errors may affect M4 itself, as well as its sectoral analysis.

Seasonally adjusted quarterly M4 is calculated as households' M4 (seasonally adjusted) plus PNFCs' M4 (seasonally adjusted) plus OFCs M4 (seasonally adjusted). More details are available in the article Seasonal adjustment of quarterly M4 excluding intermediate OFCs (M4ex) published in the September 2010 Bankstats. Following a review of the seasonal adjustment method for non-intermediate OFCs once a sufficient run of monthly data was available, changes were made to the seasonally adjusted measures of M4 and M4 lending to bring them into line with the usual approach. The changes are detailed in Bankstats, October 2013, ‘Modifications to the seasonally adjusted measures of M4 and M4 lending excluding intermediate OFCs’.

Retail M4 (or M2) comprises:

The M4 private sector's

 

  • holdings of sterling notes and coin; and
  • sterling denominated 'retail' deposits with UK MFIs.

As noted in the August 1992 Quarterly Bulletin (page 317), the definition of the deposits which, along with notes and coin, previously comprised M2 was altered with effect from the flow for December 1992.

Retail deposits are defined as deposits which arise from a customer's acceptance of an advertised rate (including nil) for a particular product, typically 'retail' deposits are taken in the reporters' branch networks. With effect from October 2007, there was a change in the treatment of non-interest bearing deposits (see Valuation and Breaks).  

Acceptances

The treatment of bank acceptances changed in September 1997, and was backdated. Acceptances are still being reported off balance sheet by individual reporters, but in the aggregated accounts and monetary statistics they count as on balance sheet of the accepting reporters (i.e. reporters accepting a bill are regarded as having a liability to the bill's owner and a claim on the party whose bill has been accepted).

 

Other MFI deposits include all Tax Exempt Special Savings Accounts (TESSAs) (until maturity in April 2004) and (cash) Individual Savings Accounts (ISAs).

Repos include sale and repurchase agreements against marketable securities of all kinds. An institution selling a security under a repo retains the security on its balance sheet and records a liability to the counterparty representing the cash received. Thus, a repo is a kind of secured deposit. The matching asset will depend on how the cash proceeds were employed. An institution acquiring a security under a reverse repo does not include the security on its balance sheet but records a claim on the counterparty representing the funds lent. The matching liability will depend on how the loan is funded.

Valuation and Breaks

Details of breaks in monetary series and temporary distortions to the data up to December 1988 are described in Technical Series paper No 23 entitled 'Breaks in Monetary Series' published by the Bank in February 1989. This paper was updated in Part 2 of the 'Bank of England Statistical Abstract 1993', and in section B of subsequent Statistical Abstracts. 

Banking Statistics Review

 
New banking statistics returns were introduced at end-September 1997 to bring the UK into line with European System of Accounts 1995 (ESA 95) standards. Flows were adjusted to remove the effects of any changes resulting from the new forms. Levels were, however, on the new basis from end-September.
 
Specific changes affecting the monetary aggregates were the removal of any Channel Islands and Isle of Man (CI/IoM) 'opted in' banks from the monetary sector and the re-classification of any business with the CI/IoM as non-resident.
 
For further details of the changes, see articles in the September 1997 'Outcome of the review of banking statistics, including effects on monetary and other banking statistics' and February 1998 'Impact of the review of banking statistics:  changes and additions to published data' issues of Bank of England: Monetary and Financial Statistics.
 

Building Societies Statistical Review

In October 1998 a revised new monthly building society form was introduced bringing the building societies into line with ESA 95 standards, and breaks in series occurred as definitions changed.

Retail deposits

Prior to October 2007, all non interest-bearing deposits were included in banks' retail deposits. From October 2007 data onwards, non-interest-bearing deposits are only included in Retail M4 when reporters identify them explicitly as being taken from retail sources. Consequently there was a small fall in the amount outstanding of Retail M4 in October 2007.

Building societies' 'retail' deposits are now compiled on the same basis as banks.  Prior to January 2008, these included all shares held by individuals and deposits from individuals. From the time of the introduction of revised building society forms in September 1992, net transit items (i.e. assets less liability transit items) were subtracted from these deposits to offset any over/under-statement in the flow of the UK private sector's holdings of M4, i.e. sterling deposits at MFIs combined. Prior to October 1998 'Retail' was as defined in section 7 of the 1986 Building Societies Act.

Building Societies transition to Bank of England reporting

Building societies' statistical reporting transitioned from the Financial Services Authority to the Bank of England on 1st January 2008, and some minor changes to the calculation of M4 and M4 lending have been implemented.  The effects of these have been removed from the flows data, and are small in terms of the amounts outstanding.  

Securitisations Reporting

From January 2010 data onwards, all loans that have been securitised by MFIs are included on these institutions' balance sheet for statistical reporting purposes. Some institutions already reported securitisations on balance sheet prior to 2010, so their reporting did not change. However, other institutions brought back on to their balance sheets loans that had been securitised in the past. When these loans came back on balance sheet, an additional liability to the SPV was also created, to balance out the increase in loans. This caused a level shift in various series in January 2010, as well as changing the coverage of various series from January 2010 data onwards. For more details, please see the February 2010 Monetary and Financial Statistics article "Statistical Reporting of Securitisations" by Jennifer Owladi.

Changes  to the Publication of Bank and Building Societies Statistics

Separate data for banks and building societies have been discontinued from January 2010 onwards. For more details, please see the January 2010 Monetary and Financial Statistics article "Changes to the Publication of Bank and Building Societies Statistics" by Pat O'Connor.

Differences between tables

Changes in the money stock may not equal the differences in the amounts outstanding because of changes in coverage, e.g. changes in the reporting population or sectoral changes (such as privatisations of public sector companies).
 

Monetary Financial Institutions

With effect from April 1998, a new monetary financial institutions (MFI) sector was introduced, comprising the central bank (the Banking Department and the Issue Department of the Bank of England), other banks and building societies. UK monetary statistics (other than M0) were already compiled on the basis of the MFI sector and there was no change in the definition of the monetary data. This was because the Bank of England Banking Department had always been part of the UK banks' sector and the Issue Department's transactions with the M4 private sector (including transactions associated with its money market operations as well as the note issue) were already included in broad money and its counterparts. Unless otherwise stated, banks will include the central bank sub-sector.
 

Notes and coin

Estimated non-residents' holdings of sterling notes and coin are excluded from notes and coin in circulation with the M4 private sector.
 
Non-interest bearing deposits are adjusted for an element of transit and suspense items.
 

Transit and suspense items

  • Transit items appear in banks' and building societies' balance sheets both as credits and debits (e.g. standing orders or cheques in course of collection).
  • Suspense items relate to customers' funds that are not held in customers' names.

When reporters' figures are aggregated, these items may give rise to double-counting of deposits received from customers outside the banking system or, where overdrawn or loan accounts are concerned, to the under-recording of total lending made to such customers. The data for deposits and loans are therefore, adjusted with slight variations between banks and building societies to take account of the different types of activity these sets of reporters are predominant in.  For banks, these adjustments are effective from February 2006 and for building societies from January 2008.  Prior to January 2008, no similar adjustments were required for building societies' transit items because they represented 'uncleared cheque' business with banks and did not therefore give rise to double-counting (as detailed above)..

For banks (and building societies respectively):

  • 70.4% (84%) and 3.6% (8%) of sterling credit transit items are added to non- interest-bearing deposits from the UK private and public sectors respectively. The remaining 23.6% (8%) and 2.4% (0%), for UK private and public sectors respectively, is subtracted from advances.
  • 72% (91%) of sterling debit transit items are subtracted from non-interest-bearing deposits from the UK private sector and 28% (9%) are added to advances to the UK private sector.
  • 71% (90%) of sterling credit items in suspense are added to the UK private sector's non-interest-bearing deposits. The remaining 29% (10%) is subtracted from advances to the UK private sector.
  • 67% (88%) of sterling debit items in suspense are subtracted from the UK private sector's non-interest-bearing deposits. The remaining 33% (12%) is added to advances to the UK private sector.
  • For foreign currency transit items, the difference between credit and debit items is added to deposits from non-residents.
  • 39% (39%) of foreign currency credit items in suspense are added to non-residents’ deposits and 23% (23%) to UK private sector deposits. The remainder is subtracted from advances, 26% (26%) non-resident and 12% (12%) UK private sector.
  • 36% (36%) of foreign currency debit items in suspense are subtracted from non-residents' deposits and 24% (24%) from UK private sector deposits. The remainder is added to advances, 24% (24%) non-resident and 16% (16%) UK private sector.

 

Key Resources

 

 'Seasonal adjustment of M4 excluding intermediate OFCs (M4ex) - an update'.   Hussain, F and Gilhooly, R (2010), Bankstats (Monetary and Financial Statistics) November

 'Seasonal adjustment of UK monetary aggregates: direct versus indirect approach', Burnett, M (2006), Monetary and Financial Statistics, February

 'Suspense items - allocations within aggregates banks' data', Docker, S (2006), Monetary and Financial Statistics, February

 'Seasonal adjustment of monetary data: annual review', Daines, M (2005), Monetary and Financial Statistics, April
 
 'Compilation methods of the components of broad money and its balance sheet counterparts', Westley, K and Brunken, S (2002), Monetary and Financial Statistics, October
 'Monetary statistics and the monetary financial institutions consolidated balance sheet', Docker, S and Willoughby, D (1999), Monetary and Financial Statistics, July
 'Impact of the review of banking statistics: changes and additions to published data', Brown, H (1998),  Monetary and Financial Statistics, February
'Money and banking figures: forthcoming changes' Bank of England' (1981), Bank of England Quarterly Bulletin, December, pages 531-538
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