Early entry into the euro would create a house price bubble and could hit the performance of shares, fund managers have warned.

Six leading UK fund managers, questioned by independent financial adviser Chase de Vere and investment Week, all said the UK should not join the euro now and most felt it would be wrong to join the single currency within the next 10 years.

They unanimously agreed the five economic tests had not been met, that the UK and European economies were diverging not converging and reforming the UK housing market would take at least a generation.

If the UK did join the euro, interest rates would have to be reduced dramatically to be in line with Europe's and this would currently mean reducing rates from 3.75 per cent to just two per cent.

This would dramatically reduce the cost of borrowing, making mortgage repayments cheaper.

But it is thought cheaper mortgages would reignite the housing market, pushing prices up and creating a bubble in the market.

Chase de Vere also said the benefit of lower mortgage rates would be more than cancelled out by reductions in saving rates and annuity rates.

In terms of investments, it is thought the reduction in interest rates would initially boost the stock market as UK companies benefited from the reduced cost of borrowing.

People would also be likely to take money out of deposit accounts, which would offer very low returns, and put their money into shares.

But one commentator said this would be "like being on monetary crack", and warned the comedown could be terrible.

Patrick Evershed, of New Star, said: "A single currency cannot work as a single interest rate cannot work.

"It is the concept that is wrong, not a question of timing."

Monday June 9, 2003