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Lending will suffer as government assistance is paid back

Bank of England data for the month of June has confirmed what could amount to a very difficult situation for the UK economy in the weeks and months ahead. A total of £285 billion of taxpayer funding was used to finance the credit offered to households and businesses across the UK. However, this is just a small fraction of the funding made available by the Bank of England and the UK government to support the economy which will need to be paid back over the next 18 months.

It seems that banks are unwilling to use their own capital in potentially "risky" scenarios and the very fact that they will need to repay government funding over the next 18 months will see a reduction in liquidity. As this liquidity reduces the pressure on UK businesses and UK households will increase at a time when the UK economy is likely to be struggling. This pincer movement would cause massive pain across the UK and we could see businesses and consumers again falling into the financial abyss.

It is highly likely that the UK government will at some stage announce an increase in government funding with the quantitative easing program likely to be reintroduced.

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