§ Dr. Mawhinneyasked the Chancellor of the Exchequer what factors are taken into account by his Department in calculating M3; what mathematical procedures are applied to these factors to arrive at a figure for M3; and what are the procedures used by his Department to ensure that the monthly M3 figures are an accurate reflection of the changes which have taken place during that month.
§ Mr. LawsonThe monetary aggregates are compiled by the Bank of England and are based on the deposit liabilities of the United Kingdom banking sector as defined in the national income accounts. The present target aggregate, known as sterling M3, consists of notes and coin in circulation plus all United Kingdom non-bank residents' sterling deposits.
The main statistical source is a balance-sheet return submitted voluntarily each month by each of the 350 or so banks to the Bank of England. These returns are checked rigorously for arithmetical consistency and for plausibility, with large or unusual movements being referred back to the banks for confirmation or explanation. The next stage is to produce consolidated figures for the banking sector as a whole, that is, to net out all intra-sector transactions such as inter-bank lending/deposits and items in transit. Moreover, in order to produce total M3 which also includes United Kingdom residents foreign currency deposits, 235W it is necessary to make adjustments to remove distortions to the sterling value of foreign currency transactions brought about by fluctuations in exchange rates.
As an aid to the interpretation of the figures, they are then seasonally adjusted. Because of the variety of factors influencing the monetary aggregates, a consistent set of seasonal adjustments is used which apply not only to the aggregates themselves but also to the related financial flows such as the central Government borrowing requirement and bank lending to the private sector.
The overall reliability of the unadjusted figures for the monetary aggregates is believed to be high and, once published, there are relatively few revisions to past data and those that are made are generally small. The seasonally-adjusted figures are inevitably subject to revision from time to time because they are based on accumulated information about the past. A major revision is carried out annually each spring.