City & Business: Shareholders are still wearing short trousers

STOCKBROKERS and market makers should be manning the gates of Downing Street this weekend, in protest at Kenneth Clarke's decision to raise interest rates last Monday.

Since then the stock market has performed in the sort of yo-yo fashion that betrays deep confusion, as market makers adjusted prices in an effort to save themselves from being swamped with either buying or selling orders.

They largely succeeded. Turnover has stayed below 600 million shares a day, compared with the 700 million or more that could be called busy. I hold no brief for City securities houses, and weep no tears at the business they have lost. That, as they say, is showbiz.

But the relative paralysis among investors shows how effectively Mr Clarke has wrongfooted the City - apart, of course, from those of you who read Patrick Hosking's warning in this column last week. He recommended that the Chancellor and Eddie George, Governor of the Bank of England, should be more grown-up about interest rate rises: so they were. But the swings in the market since Monday's modest half- point rise suggest shareholders have yet to climb into long trousers.

The fear that has caused so many zig-zags in share prices is that this could be merely the first of a drip-drip-drip of such increases, and how far will it go? As domestic inflation and the level of retail sales remain so quiescent, the answer to that question must surely lie with the factor that prompted Mr Clarke to take action: the rampant increases in world raw material prices first highlighted on these pages in May.