By Chris Salmon of the Bank’s Monetary Assessment and Strategy Division.
Broad money growth—the growth of M4—is one of a range of real and financial indicators analysed by the UK monetary authorities in their assessment of inflation pressures and prospects. This article reviews how the role of broad money indicators in the monetary policy framework has evolved since 1980. It then considers the factors currently influencing M4 growth, focusing in particular on the effects of balance-sheet restructuring and disintermediation. In that context, it examines recent trends in broad money growth in three countries—Australia, Canada and the United States—where recovery from recession began about a year earlier than in the United Kingdom.