Janus Henderson: UK money trends still negative

Six-month growth of UK real narrow money, as measured by non-financial M1 deflated by consumer prices, was little changed in March, at only 0.8%. Growth of the equivalent Euroland measure increased to 3.7%, resulting in the widest gap since 2010 – see first chart.

The recent stability of the UK series conceals worrying weakness in corporate narrow money: the six-month change in real M1 holdings of private non-financial corporations (PNFCs) was negative for a second month in March – second chart. This is consistent with a profits squeeze partly due to high unit labour cost growth and suggests a further investment cut-back along with weaker hiring. Euroland corporate real M1 growth, by contrast, has firmed recently – see previous post.

Household real M1 expansion looks respectable but has been supported by a savings shift out of mutual funds – retail outflows from such funds totalled £6.9 billion in the six months to March after a £6.4 billion inflow in the previous six months, according to the Investment Association. The third chart shows that a broad savings aggregate encompassing M4 holdings, National Savings and mutual funds ("M4++") is growing more slowly and has been better correlated with consumer spending in recent years. Household money trends often lag corporate developments as fluctuations in labour demand feed through to take-home pay.

A consumer slowdown coupled with a steeper fall in business investment and an end to pre-Brexit stockbuilding could result in a contraction of domestic demand over coming quarters. Avoidance of a recession could depend on a recovery in Euroland demand boosting net exports.​