Weak money supply fuels growth fears

THE Chancellor of the Exchequer and the Governor of the Bank of England will meet tomorrow to discuss a further cut in interest rates as slower growth in the amount of money circulating in the economy casts further doubt on the strength of high street spending, writes Robert Chote.

The weak money supply figures did not prevent the stock market surging to a new peak, helped by Wall Street. The FT-SE 100 index rose 44.4 to a record 3,491.8.

The narrow money supply measure M0 - cash plus banks' balances at the Bank of England - rose by an unexpectedly muted 0.3 per cent last month, pulling the annual growth rate down from 5.8 to 5.3 per cent.

Don Smith, of Midland Global Markets, said recent Bank of England figures on banknotes in circulation were weak. 'The notes in circulation data suggest that consumers concentrated spending in the first part of January, but since then have cut back again.'

The British Bankers' Association reported that net lending for mortgages by large British banks fell 16 per cent to pounds 733m in December, after adjusting for seasonal factors.