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M0 growth rate lowest for two years

The narrow measure of money rose by less than expected in October, bringing its annual rate of growth down to the lowest for almost two years. The development will be useful ammunition for the Chancellor when he meets Eddie George tomorrow at the monthly meeting that sets interest rates.

The Bank of England seized the opportunity to announce a further sale of gilts through taps, taking the total to pounds 1.25bn in just four days. The Bank makes these announcements in nominal terms, so, because pounds 500m has been raised through index-linked stocks that trade above par, in practice it will have raised considerably more.

"This is a clear indication of the pressures on the Bank of England to get back on track on funding," said Nigel Richardson, head of bond research at Yamaichi International. Assuming the PSBR overshoots to pounds 28bn, that would leave them having to fund at pounds 3bn a month in the final five months of the financial year, well above the rate so far this year.

According to Simon Briscoe, UK economist at Nikko Europe, the figures suggest retail spending in the final quarter will be weaker than expected. M0 has historically tended to track spending in the shops. "The implications for output and demand are worrying", he said. M0 increased by 0.3 per cent in October, well short of the market expectation of 0.5 per cent.