Money growth slows amid 'limited impact' of quantitative easing

More doubts over the Bank of England's £175 billion efforts to aid the economy emerged today after figures showed money growth slowed during August.

The Bank's preferred measure showed money supply growth easing to 0.2 per cent last month, compared with a downwardly-revised 0.4 per cent in July.

Lending also fell by £9.8 billion during August, much weaker than the £1.9 billion fall seen a month earlier.

The downbeat data comes six months into the Bank's unprecedented programme of quantitative easing - pumping billions in newly-created cash into the money supply in an attempt to get the economy moving again.

Today the Bank invited around 40 leading economists to Threadneedle Street for discussions over the impact of the strategy.

"The latest broad money figures suggest that QE is still having a pretty limited impact," Capital Economics' Vicky Redwood said.

The Bank's QE programme is likely to continue until the end of the year, although experts have suggested rate-setters could take further action.

Minutes of recent policy meetings have revealed Governor Mervyn King in favour of an even bigger increase in the scheme to aid the economy, although the majority of the Monetary Policy Committee (MPC) does not yet support such a move.

Today's figures showed "broad money" holdings - bank and building society deposits and cash, known as M4 - in households was up 0.6 per cent month on month.

But lending to households grew by just 0.1 per cent in August and the annual rate of growth slowed to 2.1 per cent.

The money holdings of non-financial businesses fell by 0.1 per cent or £300 million over the month, while the decline in year-on-year lending to businesses deepened to 3.1 per cent.

Colin Ellis, economist with Daiwa Securities, said the figures "suggest there is still more work to do for the MPC" with the UK economy in a "dire state".

"We think the case has been made for the MPC to increase its asset purchases again - although probably not before November."

He added that the Bank seemed more optimistic over the impact of QE but warned of doing too little to shore up the recovery.

"The MPC has already made several errors coming into the recession - and it needs to be careful now not to make further mistakes now the economy is showing signs of life."

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