Fund managers now expect inflation to be at 4 per cent by the end of next year, the top of the Government's 1-4 per cent target for the underlying rate of price increases. They are also more pessimistic about the pace of average earnings growth.
Base rates are expected to have risen from their current 5.25 per cent to 6 per cent by June next year, a less pessimistic prediction than that implied by the short- sterling futures market.
Fund managers remain confident that Japanese equities will continue their outperformance so far this year, with nearly half saying they intend to buy more. The survey found a net 47 per cent of fund managers intending to buy Japanese stock, the fifth successive month in which this figure has been at 40 per cent or above.
The survey also found fund managers inclined to run down their holdings of cash, although both conventional and index- linked gilts have become more popular. A balance of about 10 per cent expects to buy more British government debt.
European equities are out of favour, with a balance of 14 per cent of fund managers planning to reduce their holdings - a similar position to that at the beginning of the year.
The fund managers were also doubtful about prospects for a single European currency.Reuse content