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Bank of England keeps base rates on hold

As expected, the Bank of England today confirmed that UK base rates will remain at 0.5% for the foreseeable future. While this was fully expected by analysts and observers, there was an interesting turn with regards to the quantitative easing program which has been in the headlines of late. Many people had expected the UK government to be on the end of a request from the Bank of England for a further £25 billion to take the total fund up to £150 billion.

As it happens the Bank of England has confirmed that since March this year over £110 billion has been pumped into the UK money markets with funds changing hands in exchange for investment-grade assets. Surprisingly, the MPC has decided to leave an extension of the £125 billion programme until August when they should be in receipt of further details about the performance of the UK economy in the second quarter of 2009.

Many people still believe the UK government will be forced to forward a further £25 billion towards the quantitative easing program in July or August although this depends upon the performance of the UK economy in the short term. UK base rates will at some stage start to rise again but this may be some way off, at least until we see definitive evidence that the economy has turned.

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