The UK’s money supply has stopped growing for the first time in 13 years in a warning sign that a recession could be looming.
Bank of England data showed money supply was no larger in July than in June.
This is in stark contrast to a flood of money printed during the pandemic, which monetarists argue was behind the surge in inflation once lockdown restrictions eased and the economy restarted.
But the stalling supply raises fears of recession and deflation, or falling prices, which could encourage the Bank to be more cautious in continuing to raise interest rates to avoid shifting the economy into reverse.
The supply of money is important as increases tend to push down interest rates and put more in the hands of consumers, which increases spending and fuels inflation.
Recession threat: Bank of England data showed money supply was no larger in July than in June in stark contrast to a flood of money printed during the pandemic
A shrinking supply has the opposite effect and usually slows down economic activity.
Former governor Mervyn King has said Bank rate-setters were ignoring warning signs in money data.
He said: ‘If they carry on for the next six months or so, tightening monetary policy, it could be that they generate a recession as well as a sharp fall in inflation.’
The Bank of England has raised interest rates to 5.25 per cent to tame inflation and is expected to raise rates next month to 5.5 per cent.
Other figures show UK households parked their money into fixed-term savings accounts last month.
Bank of England data showed £10.1billion was put in accounts that paid out interest after a set time limit, up from £6.5billion the previous month.
Deposits into ISAs jumped to £4.3billion last month from £2.9billion in June.
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