INSIDE VIEW: The hunt for a new Bank of England Governor has begun earlier than ever

Seldom have the starting gates for the race to be Governor of the Bank of England been opened so early.

Sir Mervyn King, the present Governor, is not due to step down until June 30, 2013.

Traditionally the press and City analysts begin to speculate about the succession towards the end of the preceding year, and an announcement is made early in the New Year.

New governor: Sir Mervyn King is not due to step down until June 30, 2013

New governor: Sir Mervyn King is not due to step down until June 30, 2013

But speculation has been rife for most of this year, even though my friends at the Treasury assure me that the Government will not begin to think seriously about this issue until the autumn.

There is particular interest this time, not least because of the financial crisis, the continuing economic depression, and the controversy surrounding both the Bank of England and the commercial bankers in the run-up to, and during the crisis.


A familiar metaphor from horse-racing is that candidates sometimes fall at the first fence. In this case however they have been toppling over in the starting gates.

Hardly a week goes by without news of some scandal or embarrassing email which evinces comments in Establishment circles that X or Y ‘has been holed below the water-line’.

The question always arises: should the next Governor be an insider or an outsider?

The Wilson government of 1964-70 inherited Lord Cromer, a Governor who had been appointed by the Conservatives. He was a merchant banker, and relations between him and Chancellor James Callaghan in 1964-67 were difficult.

In his hands: Some of the current crop of candidates have been cosying up to George Osborne

In his hands: Some of the current crop of candidates have been cosying up to George Osborne

This led Labour to appoint a Bank insider, Sir Leslie O’Brien. When O’Brien’s term came to an end, the (1970-74) Heath government appointed another outsider, Gordon Richardson, later Lord Richardson, an imposing figure.

Denis Healey, Labour chancellor from 1974-79, got on well with Richardson, despite ruffling the Bank’s feathers by insisting on having his own contacts with the City.

Richardson served from 1973-83, so from 1979-83 he had to deal with Mrs Thatcher. The two were like chalk and cheese, and Richardson’s desire for a further extension of his term was turned down flat.

He was succeeded by another banker, Robin Leigh-Pemberton, from NatWest. This was a surprise appointment - surprising, I believe, even to Leigh-Pemberton, who had met Mrs Thatcher only a few times but clearly bowled her over with his considerable old-world charm.

Which brings us to a crucial point, which the present government should consider when it studies applications (yes, one now has to apply for the job!)

Any outsider, however impressive on paper, will need a very strong second in command who knows the Bank well. But if an outsider is appointed this time, feathers will certainly be ruffled within the Bank, and I foresee delicate tests of diplomacy ahead.

In Leigh-Pemberton’s case, he was assisted by Mrs Thatcher’s decision to bring the redoubtable Bank official Sir George Blunden back from retirement as Deputy Governor. Two very strong potential candidates, Sir Jeremy Morse and Sir Kit McMahon, were passed over in 1983.

The key thing to remember about the appointment is that it is in the hands of the Prime Minister and Chancellor of the day.

Candidates, official or unofficial, who have managed to antagonise the PM or Chancellor have a thin chance, however good they are.

After Leigh-Pemberton (1983-93) came Eddie George (1993-2003), a strong insider about whose appointment there was little controversy. By 2003 Mervyn King, who had been economics director and later deputy Governor since 1991, was a mixture of insider and outsider.

At the time there was a strong lobby for Sir Andrew Crockett, who had had a distinguished career at the Bank and in international finance. But Brown thought he was too sympathetic towards the euro.

No doubt some of the current crop of candidates have been cosying up to George Osborne. Such cultivation could prove in vain if, despite their friendship and all the denials, David Cameron decides that it is in his and the economy’s interest to sack the Chancellor, presumably as part of a reshuffle.

Harold Macmillan, whom Cameron admires, had few hang-ups about what became known as the Night of the Long Knives. With Cameron it could be the Day of the Short Daggers.