View from City Road: Converted by the raging bull

If this week's strong advance in the stock market does not accelerate the conversion of the UK public into a nation of shareholders - 10 million at the last count in November - then nothing will.

Speculation that a combination of dull retail sales at Christmas and lower than expected inflation would lead to a cut in bank base rates from 5.5 to 5 per cent sooner rather than later provoked a fresh rush for shares by investors anxious not to miss the fast departing boat.

Enthusiasm was hardly dampened by a robust - but not too robust - figure for UK economic growth in the fourth quarter yesterday. In a market made up increasingly of unwilling sellers the FT-SE 100 index closed at a record 3484.2, an increase of 2.5 per cent on the week.

The FT-SE 250 index of second- line shares did even better with a 5 per cent gain to 4,105.8, although a fair slice of this rise may be due to heavy buying by one securities house mid-week to cover exposure to a derivatives contract.

In either case, investors have profited more in a week in capital gains than they are likely to earn from leaving their money in a building society deposit account for a year. At the same time the average income from shares at 3.4 per cent is not much less than returns from deposits.

No wonder that building societies suffered a pounds 121m outflow of money in December. Next week the Unit Trust Association is likely to announce that net sales in 1993 were about pounds 9bn, almost as much as in the previous five years combined.

Stock exchange dealings on behalf of private investors, after halving in the Eighties, rose in 1993 and net purchases of shares by the personal sector have turned positive for the first time in a generation.

Most, if not all, of the huge adjustment in financial markets to low inflation has now taken place. But if moderate growth remains intact this should ensure that an upward medium-term trend in share prices, in the manner of the Sixties, is maintained.