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Bank of England set to increase quantitative easing fund by £25 billion

The Bank of England is this week expected to ask the Treasury for permission to increase the limit on the quantitative easing program from £150 billion to £175 billion. It is also expected that the MPC will this week agree to hold UK base rates at 0.5% until we receive further signs of economic recovery and increased demand in the financial markets. However, any request to increase the quantitative easing fund may be taken as a negative by UK investors who have already seen £150 billion pumped into the system.

As we have discussed on numerous occasions, while there is no doubt that quantitative easing is working and injecting further liquidity into the UK financial markets, but the process has been very slow and long winded. Those who expected an immediate improvement in liquidity to consumers and businesses in the UK have been disappointed and even now there is no firm indication as to when liquidity levels will improve in the likes of the loan and mortgage markets.

It seems highly likely that the UK government will approve the potential increase in the quantitative easing fund because another fallout between the Bank of England and the UK Treasury would not go down well in financial markets. We await developments this week with anticipation.

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