§ Lord Bruce-Gardyne
asked Her Majesty's Government:
What is their assessment of the relative contributions of public sector borrowing, bank lending to the personal sector for purposes of financing consumer expenditure, bank lending for housing finance, "round tripping" by the corporate sector, and other factors, respectively, to the growth of sterling M3 in the current financial year to date, and whether it is their intention to take steps to bring the growth of broad money more nearly into line with the target range for the financial year.
§ The Secretary of State for Employment (Lord Young of Graffham)
In banking months April to September inclusive the counterparts to £M3 growth were as follows:
£ billion, seasonally adjusted PSBR* + 5.1 Net purchases (-) of CG debt by non-bank private sector - 3.4 External and foreign currency finance or public sector - 1.2 Banks' sterling lending to private sector + 9.7 Other counterparts - 0.3 Total: Change in £M3 + 9.8 *The PSBR less net purchases of local authorities' and public corporations' debt by the non-bank private sector.
Sectoral analyses of bank lending are only available quarterly and are on a slightly different basis to the figures given above. In the 12 months to August bank lending to persons for house purchase increased by 20 per cent. (£3.3 billion) and "other" bank lending to persons (not necessarily restricted to financing consumer expenditure) increased by 17 per cent. (£2.8 billion).1438WA
There are no statistics for round-tripping, but an article in the June 1985 edition of the Bank of England Quarterly Bulletin expressed the opinion that "hard" arbitrage ("round-tripping") in commercial bills has not been a major source of distortion to bank lending and £M3.
As my right honourable friend the Chancellor of the Exchequer explained in his Mansion House speech on 17th October, to try to bring sterling M3 back within the range would imply a tightening of policy which the evidence of other indicators of financial conditions tells us is not warranted. The Government will still take account of sterling M3, and other measures of broad money, as part of the task of forming an overall judgment of monetary conditions. At present the Government believe that monetary conditions are consistent with continued low inflation, but will continue to monitor all the evidence.