UK Money Supply Growth Remains Modest in February 2026
The UK’s money supply continued to grow at a moderate pace in February 2026, suggesting that the recent rise in inflation—largely driven by higher energy prices—may be temporary rather than long-lasting.
M4 Money Supply Shows Gradual Increase
The annual growth rate of the M4 money supply (excluding intermediate OFCs) edged up to 3.9% in February, compared to 3.6% in January.
Despite this increase, the current level remains far below the 15.2% peak recorded in February 2021, which had contributed to sustained inflationary pressures in recent years. Based on current trends, CPI inflation could stabilize around 2–3% within the next 18 months.
Financial Conditions Tighten After Iran Conflict
The tightening of financial conditions following the Iran conflict in late February is expected to restrict credit availability across the economy.
As a result, borrowing costs are likely to rise, which could slow down economic activity in the coming months.
Mortgage Approvals and Housing Market Outlook
Mortgage approvals increased to 62,584 in February, up from 60,246 in January, and slightly above the market expectation of 61,250.
However, approvals remain 4.4% below the recent peak recorded in September, indicating some cooling in housing demand.
At the same time, mortgage rates are expected to rise, with 2-year fixed rates projected to increase from 4.0% to around 4.8%, which could further pressure the housing market.
According to Capital Economics, house prices are unlikely to meet earlier forecasts of a 3.5% increase by Q4 2026, although a significant drop in nominal prices is not expected.
Consumer Credit Growth Remains Steady
Consumer credit rose to £1.9 billion in February, up from £1.8 billion in January, and above the forecast of £1.6 billion.
This figure is slightly higher than the six-month average of £1.8 billion, reflecting continued reliance on borrowing.
Since the pandemic, consumer credit has shown steady growth, with many households using loans and credit cards to manage rising living costs.
Implications for Bank of England Policy
The recent tightening in financial conditions may help contain inflationary pressures linked to the Iran conflict.
As a result, the Bank of England may not need to increase interest rates beyond the current 3.75%, or at least may avoid reaching the 4.50% level currently priced in by markets.
