The liquidity ratio of UK insurance companies and pension funds – their holdings of money and short-term paper expressed as a percentage of their total financial assets – is at its highest level since 1975, implying institutions have ample firepower to deploy in markets when confidence returns.

Liquidity stood at £182 billion at the end of the second quarter, £31 billion up on a year before and equivalent to 8.4% of assets, the highest since the bottom of the equity bear market in 1990 – see chart. With the subsequent fall in asset values, the ratio is now likely to be about 9.5%, above the 1990 peak and a level exceeded only in 1974-75, after a plunge in share prices of more than 70%.

The latest Merrill Lynch global fund manager survey confirms high sideline liquidity, with a net 49% of respondents overweight cash – the highest since this question began to be asked in 2001.