`Windfalls will be saved not spent'

Only one in eight of the 19 million recipients of the pounds 21bn worth of shares to be given away by the converting building societies will cash in their shares straightaway, subduing the "feel-good factor" and easing the mounting pressure on the Chancellor to raise interest rates.

According to a survey by Mori and analysis by Salomon Brothers, the windfalls will be saved rather than spent and will add just 0.5 per cent to consumption rates. Those windfalls which are spent would be used for foreign holidays and home improvements, with smaller sums spent on consumer durables, cars and clothes, the survey found.

Initial forecasts from City economists had put the boost to consumption at 1.0 per cent or more, leading many to predict a boost to the feel- good factor in the run up the general election.

While only Alliance & Leicester will have paid out its share bonanza before the election, the others - Woolwich, Northern Rock and Halifax - follow in quick succession.

The 9 million or so members of Halifax vote today on the society's pounds 14bn flotation plans, which on its own provides the single biggest boost to share ownership in the UK.

The effect of the Halifax's payout in June, when 8.5 million people will receive shares worth an average of pounds 1,300 each, combined with the windfalls from the other societies, has been complicating economists' forecasts for spending, economic growth and inflation over the next year or so.

The sheer scale of the bonanza is the problem as, theoretically, if all the shares were cashed in at once, the payouts would be equivalent to a temporary 11p cut in the basic income tax rate.

"If all of the windfalls are spent, adding about 4.0 per cent to consumption, there would be massive knock-on effects on capacity use, prices and the current accounts," the Salomon researchers said.

The Mori poll established that, in general, the people expecting to receive windfalls were middle-aged and richer than the overall population.

More significantly, when broken down in social class - used as a proxy for income and wealth - the survey showed that 45 per cent of the high income AB group expect to benefit from the payout. Just 17 per cent of the DE, low income, group expect to receive free shares.

The biggest payouts are also expected to go to people who are middle- aged, richer and more financially sophisticated, which suggests that a large proportion of the funds will be saved rather than spent.

The survey showed that only 12 per cent, or one in eight, of those who expect to receive a windfall would sell their shares immediately, while a similar number intended to sell the shares over the next 12 months.

This implies that only 10 to 15 per cent of the windfalls will be spent, much lower than the 25 per cent which had been used for previous estimates.

According to the Salomon analysts this suggested that current estimates of GDP growth of 3.4 per cent may now be too high and that interest rates may only need to rise by half a percentage point, rather than the 0.75 expected at the moment.

"The survey results - and assuming that sterling stays around current levels - tilt the odds in favour of a total hike of 0.5 per cent," the research said.

Halifax's special general meeting at the Sheffield Arena today is likely to see protests from disabled groups that are furious over the denial of payouts to people whose accounts are held in trust.

But even though more than 50 per cent of the society's investing members - more than 3.3 million - must vote in favour for the flotation to proceed, such protests are unlikely to derail Halifax's flotation plans.