The surge in the UK Money Supply is more important than the future of Mark Carney

Let me open by wishing you all a happy or perhaps scary and ghoulish Halloween. There were quite some sights in South London over the weekend although as I am about to describe the Governor of the Bank of England Mark Carney managed with the media to add elements of an April Fool as well. On Saturday Mark Gilbert of Bloomberg headlined a piece as follows.

Bank of England’s Mark Carney Prepares His Own Brexit

This rather extraordinary claim was based on this.

during testimony to a House of Lords committee this week, he dropped an enormous hint that he’s already decided to go. Asked about the central bank’s attitude to a particular policy path, Carney had this to say:

I don’t want to bind … (long pause) … the Bank of England two years’ hence.

I’d bet my lunch money that he hit the pause button because he was about to use the time-honored phrase “I don’t want to bind my successor.” Which in turn suggests he expects to have a successor within two years.

Why might this be?

Carney was at pains to stress that should he leave it will be an “entirely personal decision.”

Like so much of the media Bloomberg could not wait to pander to the establishment line on this.

Yet the predictions in the chart, from economists in the private sector, reinforce Carney’s pessimism about the U.K. economic outlook. The accusation that his despondency is somehow part of a “Project Fear” to reverse the referendum decision is unfounded.

The authors opinion as well as forecasts are presented as  facts and actual facts are missed out. For example that Governor Carney was part of a UK establishment that forecast that the quarter just past would see the UK economy shrink by between 0.1% and 1% when in fact it grew by 0.5%. Also the 25 or so forms of his Forward Guidance when he hinted at interest-rate rises and thereby misled those remortgaging or taking out business loans do merit a mention but there is no apparent criticism.

Back then, the economy was humming at a sufficient pace for Carney to warn in June 2014 that interest rates might have to rise. Post-Brexit, he’s presided instead over an emergency rate cut.

Oh and the man who cut Bank Rate and eased monetary policy into an exchange-rate depreciation is presented like this.

For the rest of the day, the pound held steady.

Ah one day! Now let me refer to the post-referendum day as on it Governor Carney did his job in terms of offering a back stop for matters such as liquidity at a time when the UK political establishment went missing.

So an extraordinary burst of media speculation which made me suspicious and I made my views known yesterday morning.

Has it occurred to anyone else that these rumours might be the way Bank of England Governor Carney extends his term from 2018 to 2021?

Last night the news that he was in fact staying came from a media organisation which seems to have become an adjunct to the Bank of England Public Relations department.

Mark Carney, governor of the Bank of England, is ready to serve a full eight-year term, facing down Brexiter critics campaigning for him to resign ahead of time.

Rather grand language from the economics editor of the Financial Times don’t you think? After all both the Chancellor and the Prime Minister had offered public support for him. Also Mario Draghi of the ECB and Governor Kuroda of the Bank of Japan must consider him to be very thin-skinned after what they have received. Added to this the establishment line on the independence of the Bank of England was pushed hard.

the BoE’s independence…….Friends say that Mr Carney is determined to defend the Bank of England’s independence.

In my opinion the way that QE style policies require the approval of the Chancellor means that the Bank of England has cast policy independence aside as fiscal and monetary policies merge. You could also argue that the Bank of England has been able to ease monetary policy even more than any politician would have been allowed to. If you throw in the way that HM Treasury appoints the Monetary Policy Committee members and gives them a remit to follow it gets ever harder to claim independence.

Overall the situation is summed up well by a reply to the Financial Times. From British Summer.

Mark Carney has today managed to groom himself into the roll of a media celebrity….. Leaking stories about whether you are staying or going in your position is bad banking in most folks books.

Monetary Policy

Meanwhile there is something of a critique of Bank of England policies being provided by its own money supply data. Back on the 29th of September I pointed out this.

There is much to consider in the money supply data for the UK. There is always a caveat emptor with it as the effects from it can be long and variable and we have just had an economic change. However if you brought a Martian economist to Earth and asked he/she/it to offer a view in monetary policy they would be more likely to recommend a tightening than an easing. My view is that as the UK was already receiving a large boost from the lower level of the UK Pound it should have waited for more data.

So as you can imagine I was waiting for today’s update.

UK broad money, M4ex, is defined as M4 excluding intermediate other financial corporations (OFCs). M4ex increased by £15.9 billion in September, compared to the average monthly increase of £13.0 billion over the previous six months. The three month annualised and twelve-month growth rates were 10.0% and 7.7% respectively.

So the annual growth rate accelerated and if we add that to the fall in the UK Pound we can see that quite a monetary stimulus is being provided. Meanwhile we can see this too.

Consumer credit increased by £1.4 billion in September, compared to an average monthly increase of £1.6 billion over the previous six months. The three-month annualised and twelve-month growth rates were 9.6% and 10.3% respectively.

Thus it is no great surprise that the UK economy continues to grow as we sing along to Diana Ross.

I’ve got the sweetest hangover
I don’t wanna get over
Sweetest hangover


There is much to consider here as the UK is being given quite a monetary boost. I counselled caution after the first one of two numbers as the EU leave vote was bound to have effects which might wash out. But broad money growing at 7.7% is quite a surge and unless we grow quite fast it will be inflationary. If you subtract our current annual growth rate from this the rule of thumb is that inflationary pressure is running at 5%. Now this has leads and lags and works better for RPI than CPI but it poses a clear critique of the monetary policy of a Bank of England which will no doubt claim next year that any inflation was nothing to do with it.

Meanwhile so much of the media is busy feeding a silly Public Relations exercise where the term of Bank of England Governor Carney the “star central banker” is apparently more important than the money supply data.





34 thoughts on “The surge in the UK Money Supply is more important than the future of Mark Carney

  1. Funnily enough I have just had a conversation this morning in which I was describing the ridiculous celebrity status of central bankers these days and how the world, (mainly speculators), hangs on their every word. Definitely a case of the tail wagging the dog. Remember the good old days when central bankers worked in the background and were almost unknown to the public?
    On a different subject, there is a very good article on the Der Spiegel english website about the demise of Deutsche bank. It can be summed up in one word. Greed.

    • I am astonished that anyone could associate bankers with greed. These are the heroes of our time, the titans on whose efforts we mortals rely, the bedrock of our system and the most humble folk you will ever encounter.

    • Thanks very much for the mention of the article – a must-read even for those who think that they know all the horrors. Simply astounding and amazing what DB was up to, even making money shorting products it sold to customers…

    • Thanks, I read the article in Der Spiegel, you can substitute RBS for Deutsche Bank, and change the list of names, it’s a perfect match for our dear own basket case!

  2. The mainstream media is obsessed by trivia and personalities, so no surprise there. A couple of amusements:
    1. It is a lot easier to write articles about the governor’s term than it is to get to the bottom of, say, QE or money supply…
    2. There seems to be an inability of remainer voters to accept any good news – there was a classic example of Martin Sorrell talking things down here on radio 4 this morning. The exception is, of course, Carney himself as he takes credit for saving all those jobs;
    3. The BoE PR department gives itself away by using Brexiter as its term. Apparently, all those in favour of Brexit call them Brexiteers (sounds more like buccaneer) and all those against call them Brexiters (sounds dull).
    I think that, given the money supply figures, we may well be “looking past” some inflation figures soon.

    • Hi James

      There was a death of mentions of the broad money numbers around today. If people look at the Bank of England’s Money and Credit release they mostly seem to only notice the mortgage numbers. The BoE PR department and the Financial Times are hand in glove these days which may be the influence of it being Japanese owned these days.

    • ” There seems to be an inability of remainer voters to accept any good news ” – EXCEPT ME!

      I hope this “NEWS” transmutes into “GOOD NEWS” as Shaun correctly identifies this will provide a further inflationary push to the impending inflationary surge of the £’s collapse if it doesnot translate into a growth surge in the next few months. Meanwhile watch inflation shoot up in Spring to Summer 2018 even further than it will next year and it may continue if M1 and M4 continue growing..

  3. Brilliant Shaun but highlighting trivia and celebrity together with communicating financial matters to their audience in a similar way that used to be used on Play School is their Modus Operandi .
    The 7.7% annual increase in broad money means if continued it would double in less than 10 years.
    Due to the size of our growing unrepayable National debt on which we are only able to make repayments through suppressing the interest rates to 300 year lows,there are only 2 ways out inflate or default.
    Looks like they are going to try to inflate,but once the inflation car starts rolling down the hill it could pick up speed very quickly,but in contrast to the 1980 situation,applying the interest rate brake with debts at these levels could lead to defaults.
    Basket case economics by fools and charlatans …hidden from view of the public by a compliant /ignorant media

    • Hi Private Fraser

      Those who in favour of inflation regularly tell us that they will be easily able to control it. This has several problems.
      1. It is statements from a group who have voted for the reverse
      2. UK economic history where inflation control has been painful.

      Just as I am typing this Street Eye are sending out this

      “Fed should tip-toe on rates due to weak economy, former IMF chief economist Blanchard says – MarketWatch – “

    • “but in contrast to the 1980 situation,applying the interest rate brake with debts at these levels could lead to defaults.”

      Contrast? What contrast?? I was there and the defaults came thik and fast believe you me!!

      70,000 repossessions a year from 1989 thru 1992. Near 1 million people were made homeless in that shambles so if it happened then why not again?

  4. Great blog as always, Shaun.
    The Bloomberg story by Mark Gilbert made a splash in Canadian newspapers too. I was unsurprised but a little disappointed that Gilbert made no reference to Carney’s sordid dealings with Evan Solomon, then the host of a radio and a TV public affairs program for the Canadian Broadcasting Corporation (or Clinton Broadcasting Corporation, as it deserves to be called). He was one of the celebrities who bought art works for which Solomon received a commission. He should have known that it was quite inappropriate for a Governor of the Bank of England to carry on a business relationship with a public affairs show host. Carney never offered any kind of statement about the matter, having some BoE official say that this was strictly related to his private life. Carney has always been like that. He will mix the public and the private in the most disreputable way, like when he and his family vacationed at the home of Liberal Finance Critic Scott Brison in 2012 when he was still Governor of the Bank of Canada. Then when he gets asked about it, he buttons up, and complains that journos are infringing on his privacy.
    If you check the FT website the only mention ever of Evan Solomon on it is still from a piece by Ed Crooks on November 30, 2012, which provides a glowing endorsement of Carney from Solomon based on what he believed were Carney’s formidable communications skills. As you say, FT operates now as “an adjunct to the Bank of England Public Relations department” in what it writes about Carney and his central bank. They have not only never written a story on the scandal, they didn’t even feel obligated to add a note to the Crooks article with a link to a story from a paper that had, so FT readers might judge for themselves if Solomon’s evaluation might not have been totally disinterested.
    While Evan Solomon lost his job as host on CBC Radio’s The House and to CBC TV’s Power & Politics because of his business dealings with Carney and other celebrities, he is back on the scene as big as ever. He writes a column for the Canadian news magazine MacLean’s (nicknamed MacClone’s for its transparent emulation of Time magazine) and is the new host of CTV’s Power Play, replacing the far superior Robert Fife, who has moved to the Globe & Mail. In another country, what he did might have destroyed a journalist’s career, and rightly so. Here it seems we just take it for granted that our journos are corrupt.

    • Hi Andrew and thank you.

      I am sorry to say that honest intelligent journalism is also in retreat in the UK and in fact pretty much everywhere I look around the world. Everything seems either partisan or as you say corrupt. The downwards slide of the FT seems to have picked up since it went into Japanese ownership. There are good people there and indeed at Bloomberg but I worry about the corporate culture and direction.

  5. Shaun, Thanks for highlighting the facts and truth of the matter. In my view this tentacle is now damaged. The tentacle will be withdrawn and another GS club member onserted as a replacement. MC has done a great job for the global bankocracy but the underlying manipulation is getting a little too clear, MSM media hasnt noticed, making it a story about the person instead of the effective policies…

  6. My view of Carney is no different to the rest and his cutting interest rates immediately after the referendum was a clear mistake, really quite stupid.

    Inflation is baked in and it is likely to go well over the 2% level within the next two years. But putting up rates will tank the economy and the defaults will cause problems for the banks. Every year the total stock of debt is higher and the less we are able to withstand anything like the normalisation of rates; we are not getting nearer to that point but further away with every month that passes. Carney is in the same place as Yellen: in a box.

    Carney, as incompetent as he is and as annoying as his chutzpah is, is not the cause of the problems; the cause is the conversion to fiat money in 1971 when Nixon took the World off the dollar gold standard. Fiat money regimes have always collapsed eventually and ours is unlikely to be different.

    • History lesson – Nixon abandoned the Gold standard bcause it constrained economic growth and was a major contributor to the 71/72 crash!!

      The problem with limiting currency growth to gold growth is there isn’t much gold around so you restrict your economic growth to the gold mining rate which is very very slow.

      As for “chutzpah” well, stones and glasshouses!!

  7. If the elites feel that the Western Democracies have been fouled (for want of a better word) up beyond redemption, that we greedy bastards either want well-paid work (which reduces their profits) or welfare(swoon), neither of which we are getting if they can help it, they may feel that we are such a parasitic drag on them that the answer is to demonise a non-member of the new world order (like Putin) and “accidentally” start WWIII, which eventually goes thermonuclear, wiping out all of us underserving scum, so that they can get back to pursuing sweat labour in Viet Nam, etc.

  8. Hello Shaun,

    Inflation was baked in once the oil drop fell out of the Creative Price Index,. As for RPI , well TPTB have their pensions protected by that measure – I no longer wonder why , the thieving B’stards .

    As to Comical Carney , he stands above the truth , he is superior to it ……

    and must be worrying that he’s not gonna get that juicy IMF job .

    in the mean time this foreigner will have deliberately set off a bigger inflation kick that will make us all regret voting the wrong way .

    Kinda of the master plan to tank the economy so we’ll have to stay in the European Empire.

    Forbin ,

    PS : a rate rise would kill the Banks , as they are the Masters of the Universe , it will not happen

    • I think he might try to get the Base Rate back up to the emergency level of 0.5% before he leaves. If only to prove his forward guidance was reliable after all.

    • “in the mean time this foreigner will have deliberately set off a bigger inflation kick that will make us all regret voting the wrong way . ” ??

      So you think it would be OK if a native set off inflation?

  9. going back 2 decades, a number of Bankers Trust employees got debarred from the finance industry. The DB remedy needs to include similar measures

  10. Hi Shaun
    Now that we know we that
    the next two years of our finances will
    allegedly be sensibly managed by Carney,
    a few questions arise.
    1) How does any body now that brexit will
    be completed by 2019?
    2) Will today’s dramatic fall in oil price continue
    and cool latent inflation once more?
    3) Can TBTF last in perpetuity?

    Confused, you will be!


    • Hi
      1) I would say it is 50/50 myself.
      2) Perhaps but remember the price of oil fell this time last year so to have a disinflationary effect it would need to fall faster than that.
      3) If our establishment get their way…

      You last line has me humming along to the theme tune from Soap!

    • 1) Because if May keeps her word in invoking article 50 by March 2017 then even if negotiations are niot complete within 2 years (i.e. 2019) article 50 requires the country serving notice to leave to ….leave unless BOTH negotiating parties agree to an extension.

  11. Had to laugh at this charade today.Reminded me of the furore caused when Greenspan threatened to retire early in the late 90’s and Wall St begged him to continue………….that worked out well.

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