The consensus expects sluggish UK economic growth in 2016, reflecting global weakness, fiscal tightening and a small or large negative impact from the Brexit referendum – depending on its outcome. Strong money and credit trends suggest upside risk to this forecast.

UK GDP rose by 0.5% in the fourth quarter of 2015 versus an increase of 0.3% in the US and Eurozone and a 0.4% contraction in Japan. Monthly output numbers indicate positive carry-over into the first quarter. A strong rise in unfilled vacancies – a good coincident indicator – in the three months to January suggests a solid start to 2016.

The preferred broad and narrow monetary aggregates here are “non-financial” M4 and M1, comprising money holdings of households and private non-financial corporations (PNFCs). Financial sector money has less immediate relevance for economic prospects.

Non-financial M4 rose by 0.5% in January, pushing annual growth up to 5.8%, the fastest since June 2008. Non-financial M1 increased by 0.8%, lifting annual growth to a 13-month high of 7.8% – see first chart.

Annual non-financial M4 growth was depressed last year by households switching out of bank deposits into National Savings pensioner bonds before the May general election. This distortion is now unwinding as the one-year bonds mature and some cash flows back to the banking system – National Savings lost £150 million in January versus a £6.9 billion inflow a year earlier.

Annual growth in the Bank of England’s favoured broad aggregate, M4ex*, was lower at 4.0% in January, reflecting its inclusion of financial sector money, which contracted by 6.5% in the latest 12 months. Detailed data show significant falls in money holdings of insurance companies and pension funds, other fund managers and securities dealers recently. These declines may have negative implications for financial market prospects but are unlikely to signal any slowdown in household or corporate spending.

Credit trends, meanwhile, continue to strengthen. Annual growth of bank lending to households and PNFCs rose to 3.2% in January, the fastest since March 2009 – first chart. M4ex lending, which includes loans to financial corporations, rose by an annual 3.8%: the financial sector has stepped up its bank borrowing even as money holdings have been run down.

The lending pick-up was signalled by an earlier surge in arranged but undrawn credit facilities; growth in these has moderated but still suggests further lending acceleration – second chart.

The forecasting approach here places emphasis on the six-month rate of change of real (i.e. consumer price-adjusted) money. Major economic slowdowns or recessions have been preceded by sharp falls in six-month changes of real non-financial M1 and / or M4; both aggregates are giving a positive message currently – third chart.

*M4ex = M4 excluding money holdings of “intermediate other financial corporations”.