Dawson & Fielding Inc., Rumors abound that the Bank of England may extend its QE program by another £25bn in 2010.
Sources close to Dawson & Fielding Inc. apparently believe that there is good reason to believe rumors that the Bank of England will extend its program of quantitative easing by £25bn in 2010.
Quantitative easing (QE) is a euphemism for printing money and is being used by the BoE to inject money into the financial system to ease pressure on banks and, hopefully, to encourage them to lend more to consumers and businesses.
Dawson & Fielding Inc. believes that the program has met with limited success since its introduction in March 2009. Analysts at the Asia-based investment house suggest that this largely due to conflicting pressures on the banks to both lend money and also to maintain their capital adequacy.
One source added that the dire state of the UK consumer‘s finances is discouraging many from taking on additional debt at a time when many Britons are still losing their jobs and when the prognosis for the economy going forward is so grim.
Dawson & Fielding‘s analysts suggested that Prime Minister, Gordon Brown, is keen to boost economic growth to cement his chances of being re-elected in forthcoming general elections in Britain but warn that reliance on QE as a means to achieve this growth is a risky experiment that may cost UK taxpayers dearly as the nation‘s national debt soars.
The BoE has already committed to buy some £200bn of UK treasury bonds and Dawson & Fielding said that, if this happens, Britain faces the very real possibility of enduring a “gilt strike†where investors demand higher yields on bonds to compensate for the additional risk of holding UK debt. Such an occurrence could force up interest rates and stifle the fragile recovery in Europe‘s 2nd biggest economy.