What does the rise in M4 mean for economic growth, inflation and interest rates?
Taking excess liquidity as being the difference between nominal growth in M4 money supply and nominal economic growth, i.e. including economy wide inflation, shows it is at a high level. This measure of excess liquidity is suggesting that economic growth will accelerate further and remain strong, see chart g. Given that the UK economy is in its 15th consecutive year of growth, it is no surprise to see that excess liquidity implies that inflation is under upward pressure. Although chart h shows that excess liquidity is falling from a high level, it suggests that annual consumer price inflation may not fall back to 2% but remain around 2.5%. The chart also shows that UK base rates need to rise further, by at least 0.25% and possibly more, if M4 growth does not continue to slowdown. Trevor Williams, Chief Economist Weekly economic data preview US data this week could dampen market expectations of rate cuts • After last Friday’s solid payrolls report, US economic data this week could furth
