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Bank of England faces big dilemma

This Thursday will see the next meeting of the Bank of England's monetary policy committee amid expectations that the quantitative easing program will be brought to an end having invested a full £200 billion. This places the Bank of England in a very difficult situation because there are fears in the marketplace that a sudden withdrawal of the quantitative easing program could see the UK economy relapse back into recession. So what are the options?

While the Bank of England is independent of the government of the day there will obviously be political pressure to reinstate or increase the quantitative easing program to cover the period of the election. There is no doubt that Gordon Brown would rather have the support of the quantitative easing program for the UK economy but whether Mervyn King will agree to this remains to be seen.

It is becoming more and more apparent that the UK government and the Bank of England are not seeing eye to eye and Mervyn King recently backed Pres Obama against Gordon Brown in relation to new banking sector revenue initiatives. However, as we have seen in the past, the monetary policy committee meetings can sometimes take off in a different direction to that assumed by economists in the UK.

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