Will we see quantitative easing back on the agenda?
As the rate of inflation in the UK looks set to continue to trend downwards there is growing speculation as to whether the UK government will give the Bank of England the go-ahead to reintroduce quantitative easing. This is the £200 billion program which was at the centre of the previous government's attempt to refuel the UK economy effectively oiling the wheels of finance at a time when the banking system was on the verge of collapse.
There have been whispers and rumours that quantitative easing may well be back on the agenda with a number of prominent MPC members voicing their concerns. If the UK economy is indeed set for a further downturn then the re-introduction of the quantitative easing program may be just what the doctor ordered. Despite the fact UK base rates have remained at 0.5% for 18 months this has had little impact upon the real cost of money in the UK money market. It is more a situation of supply, demand and risk which is dictating prevailing rates.
However, with potentially billions of pounds of loans set to be refinanced over the next couple of years we will need a very liquid money market to ensure that funds are available at competitive rates.
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