Growth in money supply grinds to a halt

The Bank of England's £200 billion efforts to kick-start the economy foundered in July as growth in the money supply ground to a halt, official figures showed today.

The Bank's preferred measure of "broad money" - bank and building society deposits and cash - was flat during the month despite its programme of boosting the UK with newly created bank money.

The annual growth rate slipped to 1.2%, far below rate-setters' hopes for double-digit growth in the money supply through quantitative easing.

The Bank has already slashed interest rates to 0.5% but the figures could pave the way for a further expansion of QE to underpin a fragile recovery.

Revised GDP figures on Friday showed growth of 1.2% during the second quarter of the year, but this pace is expected to slow as the coalition Government's deficit crackdown kicks in.

Today's data also showed a 0.4% fall in lending to private businesses over the month, although this improved slightly on the 0.5% decline in June.

Howard Archer, chief economist with IHS Global Insight, said: "The ongoing fall in bank lending to companies is being influenced significantly by low corporate demand for credit in addition to restricted supply.

"Even allowing for this though, the Bank of England data maintain concerns that ongoing tight credit conditions remain a significant impediment to economic activity and it is a particular problem for smaller companies."

He added: "This bolsters the case for the Bank to revive its QE programme should the recovery show serious signs of faltering over the coming months."