New York, New York (PressExposure) September 15, 2009 -- "Source One International" sources say that the Bank of England's quantitative easing program could soon see bond investors demanding higher yields in return for taking on the risk of holding the UK government's debt.
Standard & Poor's, the credit ratings agency, recently warned the UK that it faced losing its AAA credit rating if public spending wasn't brought under control. This combined with record debt issuance in the region of Â£220 billion in the fiscal year through March 2010 could see investors look to other sovereign nations with a more solid credit rating.
"Source One International" believes that much of the now-Â£175 billion quantitative easing mandate has been used buying gilts back from overseas investors who fear that the UK's problems are more acute than those of even the United States.
If bond investors decide to stop buying UK gilts, the Treasury would be forced to increase the yields in order to attract them or the Bank of England would have to print more money to buy whatever the Treasury issues.
"Source One International" says that increased yields would mean higher interest rates for mortgages whilst additional quantitative easing would eventually result in a run on the pound and a severely devalued pound.
"Source One International" suggest that recent positive news on the UK housing front is heralding a false dawn which will become apparent as over-optimism fades away to reveal the stark reality of the UK's predicament.