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What will happen if the quantitative easing program is dropped?

The quantitative easing program introduced by the UK government and the Bank of England saw £200 billion pumped into UK money markets allowing banks and other financial companies access to liquidity in exchange for assets. This has been a very successful program which has increased liquidity in the UK banking arena but as we approach the £200 billion limit placed upon the programme there are concerns as to how the UK economy might react.

There is a feeling that the short-term cost of borrowing in the money markets could increase amid signs that the UK economy may not be as strong as many had assumed. If the cost of borrowing does increase for UK banks and UK financial institutions this will not only restrict liquidity in the business and the consumer marketplaces but would increase the cost of any credit lines which are already available.

While the word from the Bank of England is that the program will end when the £200 billion figure is reached there is a growing suspicion that we may see a short-term increase in the program purely and simply to cover what will be a volatile period just prior to and just after the election. Political motivations aside, there are many who believe this would be the most appropriate course of action which the Bank of England could take.

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