pounds 25bn windfalls could trigger inflation boom

A WINDFALL of pounds 25bn from the demutualisation of building societies, insurance firms and other mutual organisations threatens to trigger an inflationary consumer boom, a leading investment bank warns today.

Consumer demand will get out of control if the Bank of England keeps interest rates on hold or if it cuts them further, Deutsche Bank warned. It is the first time any serious attempt has been made to put a figure on the new wave of demutualisations.

Economists at the German bank have raised their forecasts for consumer spending by more than half to 3.5 per cent for both this year and 2000.

They said the impact of 2.5 per cent worth of cuts in interest rates and an accelerating housing market would combine with the windfalls to trigger extra spending.

Members of Scottish Widows will share a pounds 5.7bn bonanza from the takeover by Lloyds TSB, pounds 1.1bn will be distributed to AA members as part of Centrica's purchase of the roadside rescue group and Bradford & Bingley is on the road to a pounds 2.5bn demutualisation.

Deutsche has pencilled in up to pounds 15bn of windfalls from a insurance companies including Equitable Life, Friends provident, Scottish Life and Scottish Provident, even though it is far from certain whether these will opt to drop their mutual status. "All in all, there could be quite a substantial consumption stimulus from demutualisations in the next few years to the tune of pounds 20bn to pounds 25bn ... "There is a risk of a mini-consumer boom later in the year," it said. "If, as we expect, the Bank of England's Monetary Policy Committee keeps interest rates on hold for the next six months, or even makes further reductions, consumer demand may threaten to get out of control next year and push interest rates even higher than the 6 per cent level that we forecast."

In 1997 the Bank forecast up to 10 per cent of the windfalls would be spent in the first year, adding up to 0.4 per cent to consumer spending, and it factored the impact into its inflation forecasts. Although retail sales hit a 10-year high of 5.3 per cent in 1997, they fell sharply to 2.9 per cent last year and are now running at just 1.9 per cent. Consumer spending fell to 2.7 per cent in 1998 from 4 per cent in 1997. Deutsche said it revised up its forecast for consumer spending because of the strong labour market, loosening of monetary policy and falls in import prices.

"The prospect of more demutualisations ... may further fuel the fire of the housing market," it added.

Arts and Entertainment
Hayley Williams performs with Paramore in New York
musicParamore singer says 'Steal Your Girl' is itself stolen from a New Found Glory hit
Ronaldinho signs the t-shirt of a pitch invader
footballProof they are getting bolder
peopleStella McCartney apologises over controversial Instagram picture
William Hague
people... when he called Hague the county's greatest
voicesBy the man who has
More than 90 years of car history are coming to an end with the abolition of the paper car-tax disc
newsThis and other facts you never knew about the paper circle - completely obsolete today
ebooksAn unforgettable anthology of contemporary reportage
Arts and Entertainment
Ed Sheeran performs at his Amazon Front Row event on Tuesday 30 September
musicHe spotted PM at private gig
Arsene Wenger tried to sign Eden Hazard
footballAfter 18 years with Arsenal, here are 18 things he has still never done as the Gunners' manager
newsFloyd 'Creeky' Creekmore still performed regularly to raise money for local hospitals
indybestKeep extra warm this year with our 10 best bedspreads
people'I’d rather have Fred and Rose West quote my characters on childcare'
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Trainee Recruitment Consultant - Birmingham - Real Staffing

£18000 - £23000 per annum + Commission: SThree: Real Staffing are currently lo...

Trust Accountant - Kent

NEGOTIABLE: Austen Lloyd: TRUST ACCOUNTANT - KENTIf you are a Chartered Accou...

Graduate Recruitment Consultant - 2013/14 Grads - No Exp Needed

£18000 - £20000 per annum + OTE £30000: SThree: SThree are a global FTSE 250 b...

Law Costs

Highly Competitive Salary: Austen Lloyd: CITY - Law Costs Draftsperson - NICHE...

Day In a Page

Ebola outbreak: The children orphaned by the virus – then rejected by surviving relatives over fear of infection

The children orphaned by Ebola...

... then rejected by surviving relatives over fear of infection
Pride: Are censors pandering to homophobia?

Are censors pandering to homophobia?

US film censors have ruled 'Pride' unfit for under-16s, though it contains no sex or violence
The magic of roundabouts

Lords of the rings

Just who are the Roundabout Appreciation Society?
Why do we like making lists?

Notes to self: Why do we like making lists?

Well it was good enough for Ancient Egyptians and Picasso...
Hong Kong protests: A good time to open a new restaurant?

A good time to open a new restaurant in Hong Kong?

As pro-democracy demonstrators hold firm, chef Rowley Leigh, who's in the city to open a new restaurant, says you couldn't hope to meet a nicer bunch
Paris Fashion Week: Karl Lagerfeld leads a feminist riot on 'Boulevard Chanel'

Paris Fashion Week

Lagerfeld leads a feminist riot on 'Boulevard Chanel'
Bruce Chatwin's Wales: One of the finest one-day walks in Britain

Simon Calder discovers Bruce Chatwin's Wales

One of the finest one-day walks you could hope for - in Britain
10 best children's nightwear

10 best children's nightwear

Make sure the kids stay cosy on cooler autumn nights in this selection of pjs, onesies and nighties
Manchester City vs Roma: Five things we learnt from City’s draw at the Etihad

Manchester City vs Roma

Five things we learnt from City’s Champions League draw at the Etihad
Martin Hardy: Mike Ashley must act now and end the Alan Pardew reign

Trouble on the Tyne

Ashley must act now and end Pardew's reign at Newcastle, says Martin Hardy
Isis is an hour from Baghdad, the Iraq army has little chance against it, and air strikes won't help

Isis an hour away from Baghdad -

and with no sign of Iraq army being able to make a successful counter-attack
Turner Prize 2014 is frustratingly timid

Turner Prize 2014 is frustratingly timid

The exhibition nods to rich and potentially brilliant ideas, but steps back
Last chance to see: Half the world’s animals have disappeared over the last 40 years

Last chance to see...

The Earth’s animal wildlife population has halved in 40 years
So here's why teenagers are always grumpy - and it's not what you think

Truth behind teens' grumpiness

Early school hours mess with their biological clocks
Why can no one stop hackers putting celebrities' private photos online?

Hacked photos: the third wave

Why can no one stop hackers putting celebrities' private photos online?