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MPC maintains UK base rates at 0.5%

As expected, the MPC today confirmed that UK base rates will remain at 0.5% for the foreseeable future amid concerns about the strength of the ongoing UK economic upturn and the ever-growing reduction in the public sector budget. Despite the fact that recent figures showed UK GDP increased by 1.1% between April and June this year it seems as though the MPC is more concerned with the potential slowdown in the short-term.

While the MPC decided against reintroducing the various fiscal easing policies at their disposal there is a growing belief that we may see the introduction of various liquidity programs in the short to medium term. Mervyn King, the governor of the Bank of England, recently commented upon the worldwide economy amid concerns that there could be a backlash for the UK situation. However, recent figures from the US and the euro zone would indicate that the services sector is showing signs of improvement in the short-term. But will this last?

Unfortunately, despite the fact that recent indicators would suggest an upturn in the worldwide economy, we need to look to the future and the fact that governments around the world are reducing their public-sector spending. When you also consider the limited liquidity in many business banking areas of the world this is not exactly a ready-made recovery situation.

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