On first sight, the money supply figures look alarming. May's 1.1 per cent fall in seasonally-adjusted M0 - cash plus commercial banks' balances at the Bank - has not been exceeded for more than 20 years. The annual growth rate also slowed sharply, from 4.8 to 3.3 per cent.
But several one-off factors have exaggerated the gloom. The level of banks' balances more than halved to pounds 103m in the month. Although this is a very small component of the pounds 19.6bn total for M0, its volatility has a disproportionate effect on the monthly change. These deposits could well bounce back this month, which might push the annual growth rate back towards the ceiling of the Treasury's 0-4 per cent 'monitoring range'.
Notes and coins alone fell by a seasonally adjusted 0.4 per cent in May, to a level 4 per cent higher than a year ago; still the largest monthly drop for more than a decade. But even the notes and coins figures have to be treated with caution for April and May, because the timing of Easter and bank holidays can play havoc with seasonal adjustment.
So the M0 figures should not be seen as a catastrophe, merely as evidence that the recovery could not maintain the breakneck pace it achieved early in the year. Recent disappointments in factory output, retail sales and the Purchasing Managers' index all point to the same conclusion.