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When will the money market returns to normal?

Over the last two years we have seen worldwide money markets struggling to provide funding to the financial sector purely and simply because of a fear of default. Ultimately this has led to a significant increase in the cost of money around the world which has then impacted upon areas such as mortgages, loans, credit cards and consumer finance in general. Even though UK base rates remain at 0.5%, and appear unlikely to move in the foreseeable future, this rate is not reflected in the money markets.

We will only see money market rates return to their traditional relationship with base rates as and when the fear of default and the growing concern about the UK economy recedes. Until this time there is every chance we could see situations such as the Dubai debt crisis have an impact upon short-term money market rates, which will then have an impact upon both the consumer finance market and the corporate finance market.

So far the UK government's quantitative easing program is assisting with finance in the UK but this particular initiative will at some stage, whether this is early 2010 late 2010, be taken away from the market. What will happen after that is anybody's guess!

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