Brits hoarding cash a ‘worrying signal’ for post-Brexit economy

Research from Pantheon Macroeconomics in its UK Economic Monitor notes that in the nearly three months since the UK voted to leave the European Union, the country’s supply of narrow money — essentially the amount of money in circulation in the form of physical notes and coins, and not being held in bank accounts and other assets — has surged.

Year-on-year growth in the amount of money in the UK has increased substantially, hitting 8.3 per cent in August, compared to 5.5 per cent in December last year.

The latest stats released by the Bank of England earlier in September suggest that growth in the amount of cash circulating will continue to grow.

Better than expected data from the services, manufacturing, and construction sectors of the British economy in the last couple of months have suggested that the British economy is faring well since Brexit and the increase of narrow money in the econmy has been pointed to as further evidence of this.

But people actually tend to have less desire to hold money in times of confidence.

Pantheon cites the fact that at the peak of the UK’s post-recession recovery in mid-2014, demand for physical cash hit a record low.

Pantheon pointed out that “narrow money accelerated as the economy entered recession in 2008. Growth in narrow money also picked up at the turn of the millennium, when fears abounded that electronic payment systems would stop working because of the “Y2K” bug. In short, uncertainty, not income growth, drives money demand.

The economic research consultancy added: “It is unlikely to be a coincidence that strong money growth has occurred alongside a collapse in business and consumer confidence and pessimism about the U.K.’s economic outlook since the Brexit vote in June. Note that the pick-up in narrow money growth has tracked the plunge in sterling, which has been a barometer of investors’ confidence in the U.K.’s economic outlook.”