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Will improved GDP lead to increased liquidity?

There are high hopes this weekend that an improvement in UK GDP, announced earlier this week, could lead to increased liquidity in the banking arena which should then help both consumers and businesses. There is no doubt that many banks have been holding back on increasing their liquidity due to concerns about the economy although hopefully this week's figures should give them some form of comfort going forward. So can we expect increased liquidity in the short term?

While on the surface it looks as though the UK economy is moving back into a growth period this may not be the case behind the scenes. There is growing concern that the UK economy will be significantly impacted by the budget cuts announced by the UK government and increasing taxes which will come into force in the short to medium term. As a consequence, the ongoing improvement in the UK economy is likely to be short lived unless consumer confidence increases to such a level as to cause a snowball effect which grows and grows.

It is unlikely that many banks will improve their liquidity immediately although we could see an increase in competition within the loans and savings market in the short to medium term. How long this will last depends entirely upon how the UK economy performs in the short to medium term.

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