The chances of an emergency rate cut by the US Federal Reserve are increasing as money markets struggle to cope with the fall-out from the US sub-prime mortgage crisis, according to one of the UK's top bond investors.

The next rate-setting meeting of the Federal Reserve Open Monetary Committee is not due until September 18, but John Stopford, head of fixed income at Investec Asset Management, said US borrowing costs could be cut before then if liquidity fails to return to money markets.