On 11 May, the Bank’s Monetary Policy Committee raised Bank Rate to 4.5%, a level last observed in October 2008. Since November last year, the Bank has also been reversing its asset purchase programme, reducing the size of the portfolio by about £33bn over the past 6 months. While the committee’s rhetoric continues to be quite aggressive in terms of the need for further tightening measures, in the context of stubbornly high consumer price inflation, quantitative measures of money and credit suggest that painful times lie ahead. Has the Bank misjudged its policy actions yet again?

Every month the Bank of England publishes its Bankstats tables, a motley compilation of money, banking and credit data that sheds light on the shifts in UK borrowing and deposit-holding behaviour by type and sector. These have long since ceased to attract the attention of the mainstream media and very few economists pay heed to them. Yet, over recent months, Bankstats have been sending a clear message of money and credit deceleration, which is all the more compelling when considered in inflation-adjusted terms.

The haemorrhaging of deposits from the US banking system, particularly the smaller regional banks, has been gaining coverage and concern for more than a year, but there are echoes in the recent UK data. In 5 of the past 6 months, the stock of broad money (M4 excluding some erratic financial intermediation categories) has fallen. The annual growth rate has dropped from 5.5% in March 2022 to 1.4% in March 2023. Within the aggregate, household deposit growth has fallen from 4.6% to 2.6%, private non-financial companies’ deposit growth, from 5.3% to -3.3%, and that of other financials, from 7.2% to -2.4%. Simply put, the interest rates banks have offered on deposits have lagged well behind the increases in Bank Rate and (mainly) corporate money has moved. There are better options.