As such it does not bode very well for future growth, whatever the politicians may be saying.
Also it shows that either quantitative easing is not working at all or not working yet. Either way that makes it a dangerous policy as it is potenitally increasing our debts for no reason or is storing up for a huge inflationary boom when it kicks in sometime next year (see my post of last week on predicted interest rates, this is what the banks are thinking).
The solution from the Bank of England though may well be to keep up the quantitative easing binge. in fact as I have said repeatedly I will not be surprised to see the amount of money printed eqaul the UK Government spending deficit for 2009/10 which could come in as high as £225 billion.
At the rate we are going QE is never going to stop, which was one of my underlying fears when it started even thoughI have been supported of limited QE to stop and economic collapse.
On a happier note, the reason the money supply is falling is that people are paying back their debts, total mortgage and unsecured lending is falling. In the long-term a less debt-fuelled economy is going to be a good thing, it is just going to be a very painful journey to get there.