Money growth falls to record low

ONE OF the key measures of money in the economy is growing at its slowest rate since records began in the mid-1960s, Bank of England figures showed yesterday.

The gloomy figures came as leaders of the motor and construction industries called on the Chancellor to stimulate the economy by cutting interest rates. They warned that up to 100,000 further jobs could go in the next 12 months unless action was taken to revive car sales and the housing market.

However, the pound rose as the foreign exchanges interpreted the survey from the Confederation of British Industry as a sign that interest rate cuts would be delayed. Moreover, separate figures from the building societies raised hopes that the housing market may at last be on the turn. New mortgage commitments rose in December, confirming some of the optimism from estate agents.

Growth in M4 - the broad money measure that includes cash, bank and building society accounts - fell to 3.7 per cent in the year to December, from 4.6 per cent in the previous month. The Chancellor said in the Autumn Statement that growth in M4 below 4 per cent would be 'an increasing cause of concern'.

The slowdown partly reflects the desire of consumers and companies to pay off debt rather than spend. Bank and building society lending rose by pounds 200m in December, adjusted for seasonal changes. This was well below the pounds 1.8bn rise expected by the City and the pounds 2.1bn average increase in each of the past six months.

The Treasury said that the fall in M4 growth below the floor of its 'monitoring range' did not automatically imply a cut in interest rates. M4 was depressed by companies moving to monthly payments of VAT and by the Government's auctioning its holding of BT debt, the Treasury added.

The Treasury's money supply targets are now pointing in opposite directions. While broad money supply growth has fallen below its floor, growth in the narrow measure - largely cash - is on course this month to burst through its 4 per cent ceiling. (It rose by 3 per cent in the year to December). Lower base rates have reduced the incentive to keep wealth in interest-bearing accounts rather than cash.

Figures from the British Bankers' Association showed that lending to individuals for consumption in December was well down on a year earlier. Most companies repaid more debt in December than they did at the end of 1991.

Lord Inchyra, director-general of the BBA, said: 'The only possible glimmer of light at the moment continues to come from mortgage lending.'

The net new commitments logged by building societies give an indication of mortgages about 10 weeks in advance. In December these rose to pounds 1.987bn from pounds 1.849bn in November, but this is still the lowest level for seven years.

'In recent weeks, the beneficial impact of lower interest rates has begun to feed through to house buyers' confidence,' Mark Boleat, secretary-general of the Building Societies Association, said.

However, the Chancellor was under fresh pressure from industrialists to cut interest rates.

Sir Brian Hill, president of the Building Employers Confederation, said that interest rates should come down by at least one point as part of a package of Budget measures to restore confidence and increase investment.

He was speaking as the BEC's latest quarterly survey showed that the construction industry remains in 'serious recession' with firms expected to shed a further 50,000 jobs this year on top of the 450,000 axed since mid-1989.

The BEC also forecast a 1.5 to 2 per cent drop in construction output this year following last year's 6 per cent decline, and a further heavy toll of liquidations and company failures. 'You have to go back to the 1930s to find a comparable downturn,' Sir Brian said.

The Retail Motor Industry Federation, representing 12,000 car dealerships, called for a base rate cut of 1.5 points and a freeze on taxes in the spring Budget.

David Gent, the RMIF's director-general, said the recent Treasury-inspired media speculation about tax increases was 'utter stupidity' and threatened to make economic recovery more difficult.

The RMIF predicts a further 25,000 to 50,000 drop in the industry's 500,000-strong workforce this year and the closure or sale of 7 per cent of dealerships.

The graphs show the results of the CBI's quarterly surveys of manufacturing industry (see page 1), in which companies report performance over the previous four months and give opinions on developments in the following four months. Balances are the difference between optimistic and pessimistic responses

(graphs omitted)