UK inflation overshoot reflects velocity rise  The weakness of
UK broad money growth in recent years misled most monetarist
economists into underpredicting inflation. The view taken here,
by contrast, was that this weakness would be more than offset by
a rise in the velocity of circulation of money in response to
negative real interest rates. The eroding real value of money,
in other words, would result in households and firms wishing to
hold less of it. The attempt to get rid of “excess” balances
would cause money to circulate faster, with a given stock
associated with a higher level of nominal GDP and prices.  An ex
post measure of velocity is the ratio of nominal GDP to the
broad money stock. (Broad money is defined here as M4 excluding
holdings of “intermediate other financial corporations”, or
M4ex. Figures before 1998 are estimated by linking to M4.)
Velocity bottomed in the second quarter of 2009 and had risen by
6.4% by the fourth quarter of 2011. This represents the largest
cumulative increase since