Critics warn that “the Monetary Policy Committee made a serious policy error in August when it cut rates and restarted QE,” according to Pantheon’s Samuel Tombs, as the massive spike in UK narrow money-supply – which we first noted here – reflects “uncertainty, not income growth.” Pantheon warns that they doubt the biggest surge in cash-hoarding since Lehman “signals that an economic renaissance is on the way. On the contrary, the pick-up in the desire of households and firms to hold money, as opposed to other assets, is a worrying signal.“

On the heels of Japan, Switzerland, and Germany, the UK’s biggest surge in cash-hoarding since Lehman has been suggested by some as sign – along with better than expected economic data – that the British economy is faring well. However, as we noted previously, this is almost certainly wrong and Pantheon agrees…

“As our chart below shows, 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.

“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.“

By contrast, people actually tend to have less desire to hold money in times of confidence… And in fact, sudden accelerations in the money-supply usually mislead…

Pantheon ends on a Carney-hope-crushing note…

“Accordingly, we doubt that strong growth in the money supply signals that an economic renaissance is on the way. On the contrary, the pick-up in the desire of households and firms to hold money, as opposed to other assets, is a worrying signal.“

Of course, as we have heard many mainstream economist complain recently, “Cash hoarding is a problem for monetary policy,” which can only mean more repression and a more aggressive war on cash.  Simon Ward, 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.”