Headline money supply M4 numbers have been artificially boosted by a rerouting of interbank business through non-bank financial intermediaries, partly reflecting the operation of the special liquidity scheme. Unlike interbank lending, the deposits of these intermediaries are included in the M4 definition.

The Bank of England’s industrial analysis of bank deposits, published yesterday, permits a more accurate estimate of this effect. Specifically, an adjusted M4 measure was calculated excluding deposits held by five industrial categories within the financial sector – bank holding companies, mortgage and housing credit corporations, non-bank credit grantors, “other financial intermediaries” and “other activities auxiliary to financial intermediation”.

While headline M4 climbed 12.4% in the 12 months to September, the adjusted measure rose by just 2.9% – the lowest annual growth rate since 1999. In the latest three months adjusted M4 contracted at a 2.7% annualised rate.

While the headline M4 numbers are hugely inflated, the adjusted measure could in theory understate underlying broad money trends, to the extent that the non-bank intermediaries have created money-like liabilities. However, the bulk of their borrowing will have been from banks so any such effect should be small.

The collapse in money growth, when correctly measured, adds to arguments for a large cut in Bank rate tomorrow. Incorporating today’s services PMI results, my MPC-ometer now suggests a 55% chance of a full-point move and 45% of 75 basis points.