The deputy governor of the Bank of England has warned the Government's borrowing costs could rise if quantitative easing is withdrawn.
Charles Bean said quantitative easing has led to a full percentage point drop in the Government's cost of borrowing - sparking fears of an increase in its financing costs when the programme is withdrawn, reports The Telegraph.
According to Bean, Bank research suggests gilt yields have fallen 1% as a result of the programme, under which the Government bought £200bn of assets to stimulate the economy.
Citing figures from the Institute for Fiscal Studies, The Telegraph says if the 1% drop is reversed, by 2014-15 more than 10p in every pound paid by UK taxpayers could be used to pay the Government's debt costs.
The danger of withdrawing quantitative easing has been brought into sharper focus with the prospect of the UK being downgraded - an action that would further increase the cost of financing the Government's debt.
Rating agencies have warned a downgrade is a possibility if the Government does not come up with credible plan to reduce its deficit.
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