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UK base rates to remain low for the foreseeable future

UK base rates are almost certain to remain at historically low levels for the foreseeable future after yesterday's disappointing gross domestic product data. Despite the fact that the Bank of England has injected billions upon billions of pounds of liquidity into the money markets there is no sign of a full steam ahead recovery in the UK economy. As a consequence, unless inflation balloons out of control, it is unlikely that UK base rates will change for the vast majority of 2010 with growing concern about a potential double dip recession.

If inflation does continue to rise and becomes more of a threat to the economic recovery than it is at the moment the Bank of England will have a very difficult decision to make. If they push UK rates higher then this will effectively stop the food which is feeding the UK recovery and we could be back to square one, but if inflation strengthens then the situation could become much worse and threaten the medium to long-term future of the UK. These are very difficult circumstances for the Bank of England to consider, and with each conflicting economic data report comes more questions and fewer and fewer answers.

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