With its most recent comments, Bank of England (BOE) Governor Mervyn King cemented the BOE’s status as the yo-yo central bank. Mervyn said, it’s “far too soon” to say whether officials have halted their bond-purchase program.
There’s a saying in England that if you don’t like the weather, just wait a bit. It seems that the British fickle weather has transpired to monetary policy. The weather and British monetary policy indeed have a lot in common: they are both rather unpredictable. Except, of course, that one can rest assured that the BOE is inclined to reverse major decisions in due course.
The yo-yo approach to monetary policy is nothing new in the U.K. Even before the financial crisis, monetary policy would switch more frequently and more aggressively than in other Western countries.
A game of yo-yo ends when the yo-yo no longer has enough inertia to keep winding and unwinding and yet another dose of stimulus eventually derails it. Let’s hope the BOE has mastered its game.
President and Chief Investment Officer
Author of SustainableWealth.
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