A jump in the amount of cash in circulation last month, revealed by new Bank of England figures, raised a question mark yesterday over the numerous anecdotes of a disappointing Christmas season for retailers.
Although the month-to-month changes in notes and coin are a less than perfect guide to the amount of cash people are actually spending in the shops, the figures sowed further confusion about just how fast the consumer boom is fading.
Meanwhile, Eddie George, Governor of the Bank of England, repeated his view that the economy's growth would slow this year. But, speaking in Frankfurt, he said it was not clear yet what implications this had for the timing and pace of interest rate changes.
The Bank's Monetary Policy Committee meets today and tomorrow to discuss policy, but City analysts do not expect it to announce any change. Many see a risk of a rise in the cost of borrowing after next month's meeting, depending on figures due between now and then.
The value of notes and coin in circulation jumped by 1 per cent in December, taking the annual growth to 7.1 per cent from 6.6 per cent. The growth of M0, the narrow money supply measure of which cash is the main component, increased a fraction to 6.9 per cent.
Plastic spending and hole-in-the-wall cash withdrawals from Royal Bank of Scotland also hit a new peak in December. Like other high street banks, it reported big increases in December transactions compared with a year earlier, saying these tended to contradict claims by some shops of disappointing sales.
The busiest day was 19 December, when pounds 34m was withdrawn from its machines. Its busiest single machine was at London's Liverpool Street station, which issued pounds 1.29m during the month.
"People are holding more cash, which has to say something about a Christmas spending spree. The belt-tightening will happen in the New Year," said John O'Sullivan, an economist at NatWest Markets.
Economists think the windfalls of free shares have helped boost the holding of cash this past year, with money burning holes in people's bank accounts. The introduction of the new 50p coin has also increased the amount in circulation. However, higher rates, along with weakening growth, should be reflected in slower notes and coin growth in the months ahead.
Separately, Charles Goodhart, a member of the Monetary Policy Committee, said it would be feasible for the Bank of England to shadow an inflation target set by the new European Central Bank, which comes into existence with the start of the single currency.
This could be "done without great difficulty, but it depends on the technical details," he said. The question was which price index the ECB would choose as a target.