Boris Johnson has a Bank of England problem


Regrettably, none of the names floated recently – including in a Financial Times report this week – match this description. Minouche Shafik, director of the London School of Economics and a former deputy managing director at the International Monetary Fund, has the international profile. Yet her tenure as a BOE deputy governor has been unimpressive, and she failed to leave her mark on its rate-setting Monetary Policy Committee.

Kevin Warsh, a former senior official at the US Federal Reserve, is well-known in monetary policy circles. He has written a review of transparency at the BOE, so he has direct knowledge of the institution. Unfortunately, he made a number of wrong calls during the financial crisis. In 2008 he argued that inflation was a big risk despite all the economic weakness and financial turbulence. He opposed the continued use of quantitative easing, even though it was decisive in the US recovery.

Who will replace Bank of England governor Mark Carney?Credit:Bloomberg

Andrew Bailey, head of the UK Financial Conduct Authority and another former BOE deputy governor, has long been considered the “safe” choice for the job. But a string of possible regulatory oversights – most notably over Woodford Investment Management – has dented his reputation. There are doubts too over his international stature. He’s an acceptable option, but hardly an advertisement for “global” Britain.

Another choice would be to promote an internal MPC member. Sadly they all have drawbacks too. Ben Broadbent is the best monetary brain, but is unproven organizationally. Jon Cunliffe is a veteran of UK negotiations with Brussels, yet he’s not a trained economist and wouldn’t provide the right intellectual leadership. Andy Haldane, the BoE’s chief economist, is very creative. But his views on monetary policy have often been flippant, which might worry investors. Dave Ramsden, a former chief economic adviser to the Treasury, is maybe the best-rounded candidate, but he’s only been on the MPC for a couple of years so might not have the necessary experience.

Chancellor of the Exchequer Sajid Javid may want to expand his search. The trouble is that Brexit creates a recruitment paradox. While its complexities demand a world-class central banker, they make the job unappealing.

The debate over how the BOE operates has become brutally political, as Carney can attest. The future of Britain’s economy and financial system will hinge on a string of trade decisions made by Johnson, over which the new governor will have no influence. Little wonder Raghuram Rajan, ex-head of the Reserve Bank of India and one of the best possible candidates, said Brexit was a reason he didn’t apply.

Britain may therefore need to settle for an ordinary BOE chief, rather than a superstar. That would be the start of a new era of diminished expectations in London.

Bloomberg



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