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Cash coming into UK investment funds has fallen slightly, according to the latest figures from the Investment Management Association, proving the credit squeeze has finally started to bite.

In July, assets under management in UK domiciled investment funds fell 3 per cent to £414.3bn from the previous month, and were down by 10 per cent from July 2007's £458.2bn.

UK-domiciled Isa Assets under management for UK-domiciled Isa stood at £84.5m, down 3 per cent on June, and 7 per cent lower lower than July 2007.

Mark Dampier, head of research for Bristol-based Hargreaves Lansdown, said: "I am not surprised at all. These figures show there is a lack of confidence and we are seeing it everywhere - in the stock market, the economy and housing market.

"It is what we would expect when the stock market is going through a rough patch. You cannot open a newspaper these days without there being some doom and gloom and I think investors are not going to regain confidence any time soon.

"The problem is there is so much debt, and the government too is also right up to its eyeballs in debt."

The IMA statistics show net sales of UK domiciled investment fund Isas saw outflows of £412m in July 2008, compared to outflows of £209.9m the previous month and outflows of £125.1m in July 2007.

Elsewhere, net retail sales saw a £491m outflow overall, while equity funds saw an outflow of £669m. However, there was an inflow of £334m into the 'other' category, driven by absolute return funds.

The most popular sector in July 2008 was UK All Companies, representing 20 per cent of gross retail sales of UK domiciled funds.

Some 76 per cent of gross retail sales into the UK All Companies sector were through the intermediary channel, although the most popular distribution channel for gross retail sales of UK domiciled funds was the intermediary channel, at 85 per cent.

Meanwhile, the Absolute Return sector was the most popular UK-domiciled net retail sector, with inflows of £232m.

Jane Lowe, director of markets for the IMA, said: "With the FTSE once more under pressure in July, investors again withdrew from equity funds, with many turning to investment in absolute return funds.

"Total assets under management were also down during the month, by 2.6 per cent, in part owing to poor market performance.”

However, Mr Dampier said: "People need to realise the stock market cycle and economic cycle are two different things. Economic news will continue to get worse and worse, but eventually the stock market will rally again.

"However, I think it will be at least 2009 before this happens and I think we will see interest rates fall heavily."