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Money matters

If you want to understand the economic outlook you have to focus on the money supply.

Latest statistics show that the broad measure of money supply growth in the United States and across the euro-zone is just under 5 percent (year-on-year). This is neither feast or famine. Money supply statistics suggest economic prospects in these economies will weaken slightly over the next 6-9 months. However, the money supply statistics have been flashing warning signs for the UK economy. The Bank of England's chosen measure for the broad money supply, M4x, is rising by less than 2 percent (year-on-year). It is has been very weak throughout 2019 and does not bode well for economic prospects in the second half of 2019 and into 2020. Three years ago M4x growth in the UK was almost 8 percent (year-on-year). But now broad money supply growth has fallen back to rates last seen in the immediate aftermath of the financial crisis. Broad money supply growth now matters if you're trying to understand the future economic outlook over the second half of 2019 and into 2020. Indeed, despite the tightness of the labour market at present, with low unemployment and high employment, money supply growth is signalling that monetary policy should be eased not tightened.