Jan. 30 (Bloomberg) -- Mervyn King was appointed to serve a second term as governor of the Bank of England, overcoming criticism that his delay in responding to a global surge in credit costs helped trigger the first U.K. bank run in a century.

Prime Minister Gordon Brown said King, 59, will serve another five-year term beginning when his current contract expires in June. King, who was first named to the post in 2003, has blamed U.K. and European laws for complicating efforts to rescue Northern Rock Plc.

King's job will be to prevent the U.K.'s record-breaking economic boom from ending in recession just two years before Brown faces an election. He also must restore the Bank of England's reputation after the run on Northern Rock. Policy makers face a ``difficult balancing act'' this year as inflation accelerates and growth slows, King said Jan. 22.

``It's clearly a sign of the Treasury wanting to maintain stability and confidence in the system,'' said Amit Kara, an economist at UBS AG who formerly worked for policy makers at the central bank. ``Mervyn will face the challenge of navigating the economy through a period of high inflation, and dealing with Northern Rock and the wider implications of the credit crunch.''

Slowing Growth

U.K. economic growth is showing signs of slowing after contagion from the U.S. subprime mortgage market collapse. Home- loan approvals dropped in December to the lowest in at least nine years and consumer credit fell as banks curbed lending, Bank of England data released today showed.

Andrew Sentance, a part-time member of the Monetary Policy Committee and former chief economist of British Airways Plc, also won reappointment to the rate-setting panel for another three years starting in June, the Treasury said in a statement.

Brown's office released a statement confirming King's reappointment. King, in a statement released by the bank, said he was ``honored'' to serve.

``I am honored to accept reappointment as governor of the Bank of England and look forward to working hard with my bank and MPC colleagues on the economic and financial challenges that face us all,'' King said.

Brown's popularity and ratings among voters for handling the economy has slumped since he took over from Tony Blair in June. King has established a record for keeping a lid on prices during the past five years as governor.

Inflation Limit

Under King's watch, inflation has exceeded the Bank of England's upper limit of 3 percent just once. He has helped steer the economy through the longest period of uninterrupted growth in two centuries.

``He's by far the best person for the job,'' said Willem Buiter, a professor at the London School of Economics who used to sit on the bank's nine-member Monetary Policy Committee.

With growth slowing, Chancellor of the Exchequer Alistair Darling says the Bank of England has room to cut rates further after reducing borrowing costs for the first time in two years in December. House prices dropped for the first time since 2000 in the fourth quarter and consumers, an engine of growth during Brown's 10 years as finance minister, are cutting back spending.

``The Monetary Policy Committee has room for maneuver,'' Darling told Parliament on Jan. 24. ``We will take the right decisions for the long term. If we do that, we will get through these problems just as we have dealt with problems in the past.''

Rate Forecast

Economists forecast growth to match the slowest pace since the end of the last recession in 1992 this year and predict the Bank of England will cut its benchmark three times this year. At 5.5 percent, the key rate is the highest among the Group of Seven nations.

King is nevertheless standing tough and suggesting only limited room for further reductions. Inflation may accelerate above 3 percent this year, matching the fastest pace in a decade, from 2.1 percent in December, he said Jan. 22.

``To put it bluntly, this year we are probably facing a period of above-target inflation and a marked slowing in growth,'' King, an architect of the Bank of England's inflation- targeting strategy, said last week. ``We face a difficult balancing act.''

Growth will probably cool to 1.8 percent in 2008 from 3.1 percent in 2007, a survey of economists by the Treasury shows. That would match the slowest pace since 1992.

Second Term

During his second term, King will have to restore his reputation as one of the world's leading central bankers, which took a knock last year after he failed to prevent the U.K.'s worst financial crisis in 30 years.

The Bank of England governor, who once said he wanted to make central banking ``boring,'' initially refused to follow the European Central Bank and the Federal Reserve and help banks stung by the U.S. subprime mortgage collapse, arguing that would unfairly bail out investors who made risky bets.

That forced Northern Rock to apply to the central bank for emergency funds in September, prompting former policy maker Richard Lambert to compare Britain to a ``banana republic'' and drawing criticism from lawmakers. King said U.K. bankruptcy rules and European Union market transparency laws prevented a covert rescue of Northern Rock.

``Mervyn is an outstanding economist but he misjudged and definitely exacerbated the credit crisis,'' said Steven Bell, chief economist at hedge fund GLC Ltd. and a former U.K. Treasury official.

2001 Attacks

King, a former academic, helped steer the U.K. economy away from slumps in each of the rest of the Group of Eight nations after terrorist attacks in 2001.

``Mervyn is extremely able and a world class gentleman and central banker who is deeply admired by his international colleagues for his intellect, judgment and counsel,'' former U.S. Treasury Secretary John Snow said in an interview on Jan. 9. ``He is a world-class economist and a terrific asset to the world economy at times like this.''

Today's announcement is the first in the biggest round of appointments to the bank's Monetary Policy Committee since 2003.

Brown has yet to decide whether to grant another term to Deputy Governor Rachel Lomax, who at age 62 would be past the usual retirement age if she served another five years. Paul Tucker, who oversees financial market operations at the bank, is up for reappointment at the end of May.

King became chief economist in 1991 and helped guide the bank through its first years of independence, which was granted by Brown when he became chancellor of the exchequer in 1997.

Bernanke's Office

Like Fed Chairman Ben S. Bernanke, King came to central banking from academia. He studied at Cambridge University before spells at Harvard University and the Massachusetts Institute of Technology, where his office adjoined Bernanke's.

King worked as a professor at the London School of Economics beginning in 1984 and was named chief economist at the Bank of England in 1991. In the early 1990s, he pushed for a redrafting of U.K. monetary policy following the country's ejection from the Exchange Rate Mechanism, a forerunner of European Monetary Union.

King likes to liven up his speeches with references to subjects as varied as football and weekend nightlife.

In November 2000 he said upcoming data ``might bear some resemblance to old-fashioned disco dancing -- sharp movements in unpredictable directions creating much excitement, accompanied by a good deal of noise.''

An avid football and a former director of Aston Villa soccer club he once compared the bank's policy of steering investors' interest-rate expectations with a goal scored by Argentina's Diego Maradona in the 1986 soccer World Cup.

For King, the start of his second term may prove the stiffest challenge of his career as central bankers try to steer their way through the contagion created by the subprime rout.

``So the next year will pose economic challenges for all of us -- more so than at any time since the Bank of England was given its independence in 1997,'' he said on Jan. 22.

To contact the reporter on this story: John Fraher in London at jfraher@bloomberg.net.

Last Updated: January 30, 2008 05:52 EST