What will happen to the UK economy in early 2010?
Today's announcement that UK base rates will remain at 0.5% for the foreseeable future and a £25 billion increase in the quantitative easing program were pretty much as expected by analysts but nevertheless there is concern about the first quarter of 2010. The quantitative easing program is scheduled to end in February 2010 and many people are wondering exactly how the economy will react when this funding is taken away.
When you consider that up to £175 billion has already been pumped into the UK economy and there has been little or no improvement in performance, will a further £25 billion tip the economy into recovery mode or is this just throwing good money after bad?
There is also the problem of when quantitative easing is withdrawn from the market place and whether we can expect UK banks to increase liquidity and indeed will they have access to increased liquidity themselves?
Even though today's announcement by the monetary policy committee of the Bank of England was pretty much as expected it has managed to pose more questions than it has answered because of the uncertainty about 2010 and where any additional funding will come from. The UK government needs to massage the economy in the short to medium term to give itself the best chance of victory at the next election.
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