More money helps interest rates in the UK

By Teamspirit on Wednesday, 1 February 2017

Banks and businesses have enthusiastically embraced the Bank of England’s quantitative easing scheme, with £4.9bn of corporate bonds bought in just twelve weeks – half of the total it intended to buy over eighteen months.

These bond purchases, along with the central bank’s Term Funding Scheme, which has injected almost £21bn into lenders, are part of a plan to keep interest rates down. And they appear to be working.

Lowering borrowing costs has helped corporate investment, and kept mortgage interest rates falling, allowing the important UK housing market to continue performing relatively well in uncertain times.

While quantitative easing was introduced in part to protect against an anticipated slowdown in the economy that failed to materialise, it has helped mitigate the impact of rising inflation as a result of the falling value of the pound.

With inflation predicted to rise further, sterling showing little sign of rallying, and half the bonds the Bank of England planned to buy already purchased, it will be interesting to see what new strategies it will use over 2017 to keep interest rates low.

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