FEAR OF FINANCE

It is generally a bad sign when no one wants money, and no one seems to want to pay for it at the moment. In the last six months expectations have swung from an imminent increase to further falls in base rates. Building societies in particular are again shaving mortgage rates, especially on fixed-rate loans, simply to try to get their money out on loan before rates fall further. Some of the societies targeted by speculators opening accounts are stuffed with cash they cannot use in their mortgage business.

Banks and building societies are busy cutting rates on deposit accounts and the rush to put roll-over money into fixed-rate Tessas has been so heavy that the best offers have been fully subscribed and providers have been able to replace their offers with lower rates.

Rates on guaranteed annual and monthly income bonds have also dropped perceptibly in the past week alone, and savers who were grumbling about the poor returns on their money last year will be even more disgruntled now. The benefits promised to savers from a reduction in the tax rate on interest and dividends from 25 per cent to 20 per cent from April has already been eaten up.

Even the National Savings movement is in on the act. The demand for Pensioners' Bonds paying fixed returns for five years has been so brisk since the Chancellor cut the age qualification from 65 to 60 in the Budget that he has been able to cut the return on future sales from 7.5 per cent to 7 per cent.

There is also no doubt that the Treasury will save money as a result of the reshuffle to Premium Bonds and prizes. Although the public is invited to focus on the fact that the number of pounds 1m prizes is not being reduced, the fact is the total prize fund is being cut from 5.2 per cent to 4.75 per cent of the money in the pool.

There is, of course, no guarantee that rates will not rise again within the five-year time-frame of most fixed-rate offers, and for savers the message is clear. The rewards for taking a given amount of risk by investing in fixed-interest securities, unit trusts, investment trusts and shares, especially inside a tax-free PEP package, are on the increase.

Interest rates in the UK after deducting inflation have been uncomfortably high for years but a fall in demand for credit is almost always a bad sign. Even the brisk demand for consumer credit does not seem to have done much for retail trade so far.