Merk Commentary: BOE – the Yo-Yo Central Bank

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.

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.