Investors should consider holding inflation-linked bonds, gold and oil as a protection against a rise in inflation, although there is so far little evidence of a spike in price pressures despite the huge increase in the money supply, said Merrill Lynch Global Wealth Management.

The UK gilt market is signalling relatively subdued pressures at the moment – the break-even point for 10-year gilts is 2.15 per cent, well below the levels prior to the credit crisis of more than 3 per cent, said Bill O’Neill, portfolio strategist at the firm.

“As a long-term hedge against inflation, positions in UK index-linked seem to make sense. In the UK, an additional consideration to take into account in this context is the wider global inflation scenario. In portfolios with global exposures, exposure to gold or oil may be very good inflation hedges,” he said.

In other comments, Mr O’Neill said that equity prices appear to be supported by improving earnings forecasts, which while still negative, are less gloomy than recently.

“Even in Europe, recent research suggests that the market is still discounting a further 24 per cent decline in earnings, the bulk coming from non-financials. If the business sentiment indicators are correct, that assumption may be scaled back in coming months, allowing the rally to be extended further,” he said.