On one view (the “buffer stock” approach) people are relatively tolerant of small variations in their money holdings and respond – whether by spending more on goods and services, buying other financial assets or paying down debt – only once deposits hit certain thresholds. If this is right it’s the level of money that matters and the fact that, on this measure, there still seem to be “excess” deposits will continue to support consumer spending for a while yet. If, on the other hand, you believe that people respond more rapidly to an increase in the supply of money, the large accumulation of deposits during the pandemic is increasingly irrelevant and what matters more are the more recent, negative trends. I’m not sure if this is the critical judgement when it comes to our forecasts (it’s certainly not the only thing affecting household behaviour). But it is, at least, illustrative of one point – that, as with just about every other economic indicator, changes in money holdings need some interpretation and their significance is not always 100% obvious or “inevitable”. Thank you. I’ve received many helpful comments from colleagues at the Bank of England. I’d like to thank Andrea Alati, Navreen Teja and Mo Wazzi for their help in preparing the speech. Particular thanks are due to Ryland Thomas, Huw Pill and, for his comments and excellent research assistance, Fabrizio Cadamagnani. Page 31 1.

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