Rate fears cast a shadow over shares

A record number of big investors plan to sell UK shares because of fears that interest rates will have to rise next year, according to a survey published today.

The balance of fund managers planning to sell rather than buy shares, at 39 per cent, is the biggest since the survey, by investment bank Merrill Lynch and Gallup, began in 1990.

Bijal Shah, Merrill Lynch's strategist, said: "It looks like we are having a repeat of previous cycles, with a boost to the economy ahead of the election."

This pessimism in the financial markets about inflation prospects will cast a shadow over Chancellor Kenneth Clarke's annual Mansion House speech on Wednesday. The speech follows the weekend meeting of Treasury ministers and officials at Dorneywood to start work on this year's Budget strategy.

"Market sentiment has shifted considerably, even though there is a respectable economic case for lower interest rates," Neil Mackinnon, chief economist at Citibank, said.

In his speech Mr Clarke is expected to defend last week's surprise reduction in base rates by emphasising the strong exchange rate and absence of any cost pressures.

The pound has gained 5 per cent against a range of other currencies so far this year, making UK exports more expensive at the same time that key export markets have weakened.

This week's flood of official economic statistics is likely to help the Chancellor make his case. Analysts expect figures for producer and retail prices to show a further slowdown in inflation last month, while growth in underlying average earnings is expected to have remained unchanged in April.

In addition, April's manufacturing output is expected to have been very weak as firms continued to try to run down excess stocks. The only statistic that could send a warning signal on inflation is May unemployment, which analysts think continued on its donward trend.

However, other evidence continues to paint a picture of consumer demand gathering steam. "We are in a mini-boom," said Mike Dicks, UK economist at Lehman Brothers. "There is a real danger the next government will have to raise interest rates and tighten fiscal policy at the same time."

Demand for high street credit was at a record in April, the Finance and Leasing Association reports today, while total consumer credit was the highest for six months.

Member firms provided pounds 2bn of new consumer credit. Within the total, demand for retail instalment credit and personal loans hit new highs, up 57 and 48 per cent respectively on their year-earlier levels. Consumer finance for car purchase grew 25 per cent to pounds 724m.

Martin Hall, director general of the FLA, said: "The feelgood factor is obviously coming back." But he warned that the earlier upturn in business finance had not been sustained. "The lack of investment remains a serious worry," he added.

The respected pay analyst Incomes Data Services predicts in a report out today that inflation might start rising back towards 3 per cent in the autumn. The cold spring and lack of rain could lead to higher food prices.

A separate report out today predicts a significant revival in housing market activity, especially in East Anglia, the East Midlands and Wales. The pick-up in the number of transactions should ensure that prices do not fall in any region, according to forecasting group Cambridge Econometrics.

Amid market rumours suggesting speculators have been using futures markets to bid up the pound's exchange rate, the most famous speculator of all has issued a new call for international regulation of the currency markets. In an interview published in news magazine Der Spiegel today, George Soros says: "If people like myself can cause the collapse of a monetary system, then something is wong with the system."

Start your day with The Independent, sign up for daily news emails
News
election 2015The 10 best quotes of the campaign
News
A caravan being used as a polling station in Ford near Salisbury, during the 2010 election
election 2015The Independent's guide to get you through polling day
News
people
Voices
David Blunkett joins the Labour candidate for Redcar Anna Turley on a campaigning visit last month
voicesWhat I learnt from my years in government, by the former Home Secretary David Blunkett
ebooks
ebooksA celebration of British elections
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

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

iJobs Job Widget
iJobs Money & Business

Ashdown Group: Editor-in-chief - Financial Services - City, London

£60000 - £70000 per annum + benefits : Ashdown Group: A highly successful, glo...

Ashdown Group: Junior Application Support Analyst - Fluent German Speaker

£25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...

Guru Careers: Management Accountant

£27 - 35k + Bonus + Benefits: Guru Careers: A Management Accountant is needed ...

Guru Careers: Project Manager / Business Analyst

£40-50k + Benefits.: Guru Careers: A Project Manager / Business Analyst is nee...

Day In a Page

General Election 2015: ‘We will not sit down with Nicola Sturgeon’, says Ed Balls

'We will not sit down with Nicola Sturgeon'

In an exclusive interview, Ed Balls says he won't negotiate his first Budget with SNP MPs - even if Labour need their votes to secure its passage
VE Day 70th anniversary: How ordinary Britons celebrated the end of war in Europe

How ordinary Britons celebrated VE Day

Our perception of VE Day usually involves crowds of giddy Britons casting off the shackles of war with gay abandon. The truth was more nuanced
They came in with William Caxton's printing press, but typefaces still matter in the digital age

Typefaces still matter in the digital age

A new typeface once took years to create, now thousands are available at the click of a drop-down menu. So why do most of us still rely on the old classics, asks Meg Carter?
Discovery of 'missing link' between the two main life-forms on Earth could explain evolution of animals, say scientists

'Missing link' between Earth's two life-forms found

New microbial species tells us something about our dark past, say scientists
The Pan Am Experience is a 'flight' back to the 1970s that never takes off - at least, not literally

Pan Am Experience: A 'flight' back to the 70s

Tim Walker checks in and checks out a four-hour journey with a difference
Humans aren't alone in indulging in politics - it's everywhere in the animal world

Humans aren't alone in indulging in politics

Voting, mutual back-scratching, coups and charismatic leaders - it's everywhere in the animal world
Crisp sales are in decline - but this tasty trivia might tempt back the turncoats

Crisp sales are in decline

As a nation we're filling up on popcorn and pitta chips and forsaking their potato-based predecessors
Ronald McDonald the muse? Why Banksy, Ron English and Keith Coventry are lovin' Maccy D's

Ronald McDonald the muse

A new wave of artists is taking inspiration from the fast food chain
13 best picnic blankets

13 best picnic blankets

Dine al fresco without the grass stains and damp bottoms with something from our pick of picnic rugs
Barcelona 3 Bayern Munich 0 player ratings: Lionel Messi scores twice - but does he score highest in our ratings?

Barcelona vs Bayern Munich player ratings

Lionel Messi scores twice - but does he score highest in our ratings?
Martin Guptill: Explosive New Zealand batsman who sets the range for Kiwis' big guns

Explosive batsman who sets the range for Kiwis' big guns

Martin Guptill has smashed early runs for Derbyshire and tells Richard Edwards to expect more from the 'freakish' Brendon McCullum and his buoyant team during their tour of England
General Election 2015: Ed Miliband's unlikely journey from hapless geek to heart-throb

Miliband's unlikely journey from hapless geek to heart-throb

He was meant to be Labour's biggest handicap - but has become almost an asset
General Election 2015: A guide to the smaller parties, from the the National Health Action Party to the Church of the Militant Elvis Party

On the margins

From Militant Elvis to Women's Equality: a guide to the underdogs standing in the election
Amr Darrag: Ex-Muslim Brotherhood minister in exile still believes Egypt's military regime can be replaced with 'moderate' Islamic rule

'This is the battle of young Egypt for the future of our country'

Ex-Muslim Brotherhood minister Amr Darrag still believes the opposition can rid Egypt of its military regime and replace it with 'moderate' Islamic rule, he tells Robert Fisk
Why patients must rely less on doctors: Improving our own health is the 'blockbuster drug of the century'

Why patients must rely less on doctors

Improving our own health is the 'blockbuster drug of the century'