Economists who predicted the surge in inflation during the pandemic after seeing money-supply growth rocket are now worried that the UK is in danger of recession and deflation.
Monetarists argue that the surge in money supply in 2020 and 2021, fueled by interest-rate cuts and quantitative easing to support the economy, helped to cause the jump in inflation — claims disputed by the BOE. July marked the first time there has been no growth in the monthly money supply data since at least 2010. Money supply has also always been positive in quarterly data going back to 1998. In addition, the headline M4 measure for July signaled the biggest contraction in money supply since 2015.
The central bank has continued to raise borrowing costs in response to sticky price and wage data, though markets are betting on the BOE nearing an end to its rate rises.