Bank of England confirms special liquidity scheme will not be extended

The Bank of England has confirmed that the special liquidity scheme which has seen £185 billion made available to the UK banking system will not be extended beyond January 2012 when it was originally due to expire. This is a bitter blow to the UK banking community as the Bank of England introduced this particular crutch to combat the credit crunch and resulting downturn but believes now is the time for the industry to stand on its own two feet.

At the same time the Bank of England has confirmed that replacing the £185 billion liquidity made available to the banking community will be more expensive through the money markets hence consumers and businesses will see the cost of credit rise in the short to medium term. There had been speculation that the scheme would be extended or a similar program introduced but this would appear to be a forlorn hope at this point in time.

There has been no comment on the reintroduction of the quantitative easing programme with many expecting further developments at the next MPC meeting. Despite the fact that the special liquidity scheme will not be extended there is no doubt that at some point, if the economy continues to struggle, further assistance will be forthcoming whether this is from the Bank of England or the Treasury.