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Money Supply

Volume 950: debated on Wednesday 24 May 1978

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asked the Chancellor of the Exchequer within what tolerances of accuracy are the two current methods of measuring money supply. M1 and M3, respectively.

Monthly estimates, seasonally unadjusted, of M4 sterling M3 and M3 are made on the basis of balance sheet returns by the United Kingdom banking sector, which comprises all listed banks, discount market institutions, the Banking Department of the Bank of England and the National Giro. Figures for the amount of notes and coin in circulation are available from the Issue Department of the Bank of England and the Royal Mint respectively.Returns are made by all the institutions involved but a number of adjustments, some of them rather arbitrary, have to be made, for example to take account of transit items. Thus, the measures are statistical totals, subject to some estimation, rather than accounting figures. Nevertheless the reliability of the various estimates for money stock outstanding is reasonably good. The monthly changes, however, are measured by the difference between the levels at the start and end of the month and since the changes are small in relation to these levels, the estimates of the changes are proportionately less reliable.A number of additional assumptions have to be made in estimating the counterparts to money supply growth, and their break-down is likely to be estimated somewhat less accurately than sterling M3.Seasonal adjustment attempts to correct for those fluctuations in the series which reflect regular seasonal patterns, including those resulting from the timing of Goverment receipts and payments. Identification of regular patterns is, however, difficult, and seasonally adjusted figures remain subject to considerable revision to take account of later information.Apart from these difficulties of measurement and adjustment, there remain irregular and random elements in the series. Although these may cancel out over a period of months, monthly fluctuations can be considerable and the figure for a single month will be an inadequate indicator of the trend rate of growth.

asked the Chancellor of the Exchequer pursuant to the Written Answer to the hon. Member for Blaby, Official Report, 18th May, c. 269–70, and in the light of the non-availability of money supply figures for end-February 1974, if he will provide a revised version of the table of money supply growth rates using mid-March 1974 instead of mid-February 1974 in the last two lines of the table.

The information is as follows:

M1Sterling M3
Three months to mid-March 1974+6·3+19·8
Six months to mid-March 1974+5·2+23·6