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Is the quantitative easing program creating a new bubble?

Spencer Dale, the chief economist at the Bank of England, has today warned that overuse of the ongoing quantitative easing program could result in the creation of a new economic bubble in the UK. The problem would then be trying to deflate this bubble under controlled conditions without causing a significant downturn in the UK economy and effectively putting us back to square one.

There is growing concern that the recently expanded quantitative easing program is actually supporting the UK economy more than many people had assumed. Even though the Bank of England and the UK government have been fairly vague as to when the quantitative easing program will end, it will need to come to a close at some stage. It is widely known that Mervyn King, the Gov of the Bank of England, recently requested an expansion of the program which resulted in a £50 billion increase. Will it be enough?

The hope was that the UK economy would strengthen in the short to medium term and take up the slack left by the quantitative easing program, when it finally comes to an end. However, at this moment in time the UK economy has improved slightly but is nowhere near the level required to replace the effect of the quantitative easing program. When the UK government finally reduces the financial stimulus is a very tricky question and one which could be vital to the future performance of the UK economy.

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