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Why has the Bank of England increased the quantitative easing fund?

While today's announcement of a £50 billion increase in the quantitative easing fund was released with an air of confidence, concerns are growing as to why the Bank of England has chosen this moment to increase the funds in question. There is a suspicion that even though it's still fairly early days for the quantitative easing policy to kick in, the impact of the significant wall of cash used already appears to be waning.

In effect quantitative easing has seen the Bank of England buying back various assets from various financial authorities in the UK in order to increase liquidity in worldwide money markets. While the scheme was released in a blaze of glory, with an immediate impact, the increase from £75 billion to £125 billion is alarming. This comes on the same day that Lloyds Bank announced that it has yet to join the government's toxic asset insurance scheme even though many investors and analysts had assumed the paperwork had already been completed.

Unless the authorities and the banking groups in the UK increase their urgency to replenish balance sheets there is a risk that the UK banking sector could enter yet another difficult period.

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