Bank of England steps in to calm market fears
The Bank of England has today given the first indication that interest rates may rise before the quantitative easing program is brought to an end. There had been significant concerns in the market that the government's requirement to raise funds to fight the economic downturn and the Bank of England's resale of bonds acquired in the quantitative easing program may flood the market with fixed interest instruments. However, it looks as though this may not be the case and the Bank of England may hold onto these particular assets for some time to come.
While the timing of these two issues is vital, it is certain that at some stage the Bank of England will need to sell bonds acquired in the quantitative easing program and the UK government will need to raise more funds. The hope is that if interest rates rise before the Bank of England sells bonds back into the market then this should indicate that the economy has turned and investors may be hungry for fixed interest assets. However, an increase in interest rates could reduce the value of bonds acquired under the quantitative easing program but time will tell.
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