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Slow growth may not be enough to stop QE
11 March 2013
Sovereign debt markets in the west have remained firm despite rising debt and lacklustre growth. Paul Golden asks how long quantitative easing and investor patience can keep this going
When the UK finally lost its triple-A status at the end of February few were surprised. The markets barely wobbled when Moody’s reduced its rating to double A1 – after all it had been on negative outlook for more than a year.
The UK’s problems are well known. The Institute of Fiscal Studies has predicted the country will have a budget deficit of £119.8bn in 2013 and the date when this is expected to disappear slips back with every reforecast. Growth was almost non-existent during 2012 and few expect this year to be much better. The national debt is expected by Moody’s to reach over 96% of GDP in 2016.
In the days after the downgrade the UK’s cost of borrowing actually decreased – not because the chancellor of the exchequer’s vowed to “redouble” his resolve but because of events in Europe, where the Italian electorate returned...
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