Is this the reason why Mark Carney went Full
“shock-and-awe”-tard this morning?
Households may have started to hoard their cash, with
new figures showing that the amount of money being kept outside Britain’s
banking system is now rising at the fastest rate since the financial crisis.
As Sky News reports, in the weeks following
the EU referendum, the rate at which households and businesses built up
holdings of UK banknotes and coins rose above 8% a year for the first time
since 2009, according to a Sky News analysis of Bank of England statistics.
The
growth rate of cash in circulation has more than doubled since January, when
it was running at 4% a year, with a sudden acceleration in the weeks following
the EU poll.
In cash
terms, the amount of notes and coins outside the banking system rose by £1.2bn
since the end of May, and by £5.9bn in the past year – the biggest annual rise on record.
Sky News has also found that the proportion of UK banknotes circulating outside the banking
system – in people’s pockets, stored at home and outside the country – has now
hit the highest level since 1979, as a percentage of GDP.
Simon Ward, the economist at Henderson Global Investors, said:
“People
may be hoarding notes not for safety reasons but because the Bank of England is
expected to cut interest rates significantly, possibly even imposing a negative
rate on bank reserves, forcing banks to start charging for operating current
accounts.”
“Hoarding may also reflect increased demand for £50 notes due to
uncertainty about their future supply,”
“(BOE) Governor
Carney confirmed in June that there are no plans to introduce a plastic version
of the £50 note,fuelling fears raised by Mr (BOE chief
economist) Haldane’s earlier speech that the Bank intends to restrict the
future supply of cash in order to create scope for interest rates to fall
further below zero.”
The sharp increase in the amount of notes and coins outside the
banking system is likely to sound an alarm for economists, some of whom have
warned that with interest rates at record lows, there is diminishing the
incentive for consumers to leave their money in bank accounts, prompting them
to hoard their money at home.
