Despite the flurry of excitement that swept the nation following the arrival of new British Prime Minister Tony Blair, the stock market is not likely to exceed the returns already seen this year, thinks Mike Barber, investment manager of the GEC Pension Plan.

I think we've probably seen most of the return that's going to come this year" he says. "It won't go higher in the short term, but I think if we should see total returns this year in the order of 15% that would be the best expectation. That would currently imply no further capital movements. A little bit more income to come and that's about it."

He expects bonds have also delivered to their maximum expected before year-end. "I wouldn't expect a vast amount more. If we've got a total this year of 10-15% with an average of 12%, that would be a pretty good outcome."

The handover of interest rate control to the Bank of England seems to have caused a "wave or relief" says Barber, even though Gordon Brown's latest move to create a new 'super regulator' to oversee the bank plus other city regulators has incited major concern if not confusion. But as a result, rates look set to pick up speed in an upward direction. "I think they'll probably go up faster than perhaps people anticipate at the moment. I think the economic data now is pointing to quite rapid growth which the Bank of England may see as a warning sign."

The banks though look set to lead the large companies in outperforming the index this year. "We've seen a huge performance out of a very focused part of the market, that of the very large companies, the banks, pharmaceuticals. I think we could see some more out of the banks, I don't think we've seen the end of that run."

However, by the end of the year he expects the banks to be outshone by the smaller and medium size companies, with their larger counterparts either snared in a "catching up process" or just falling behind.

The GEC Pension Plan currently holds just under £4.7bn ($7.5bn) under management, 74% of which is managed "primarily in-house". The fund is heavily equity-biased, totalling 78% of the entire portfolio, which Barber puts down to historical reliability in long-term performance, though he admits the downside of such a high weighting. "There are certainly risks in the short term when equities don't do that well, or something comes along and clobbers them relative to something else. The danger is, I suppose that bonds do particularly well, and it depends on how firmly you believe that equities will do that and whether you can stand the heat if you were wrong for a period of a few years."

The equity allocation is largely dominated by UK stocks with a 12% investment in major overseas markets. The remainder of the portfolio is divided into 3% bonds, 5% index-linked, 4% property, and 10% cash.

Barber says the plan recently adopted a benchmark, which sets an asset allocation to each market, though he stresses its flexibility. "It incorporates very wide ranges so there's a lot of latitude to move away from that and therefore we have to take account of market valuations and conditions. We're not always returning to, for example, 65% in UK equities."

Rachel Oliver"