Is Mervyn King set to open the floodgates?
Mervyn King, the governor of the Bank of England, is believed to be on the verge of giving the Bank of England the go-ahead to "print more money" to boost the UK economy. Over the last few months the MPC meetings have been dominated by inflation and the UK economic outlook with very little in the way of comments regarding quantitative easing. However, after Mervyn King's TUC speech today it seems that we are on the verge of yet more money being printed to save the UK economy.
Historically the Bank of England has used the financial instrument of interest rates to affect economic cycles and turnaround recessions and cool down the boom times. However, UK base rates have remained at 0.5% for 18 months now and are having very little impact on the UK economy as a whole. The only impact which interest rates will have now is when they move higher, something which many people believe could be up to two years away.
As a consequence, the UK government is now about to enter some very choppy water with critics asking why the Bank of England is set to print money at a time when the UK government is looking to reduce public sector spending. David Cameron will have some very difficult questions to answer in the short to medium term although ultimately he was voted in to take the difficult decisions and he has so far faced his challenges head-on.
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