Osborne Extends BOE Transformation in Carney Deputy SearchJennifer Ryan and Svenja O’Donnell
Chancellor of the Exchequer George Osborne will soon get a chance to further reshape the Bank of England with a fourth policy appointment at the top of an institution he has already transformed.
With the departure of Charlie Bean as deputy governor for monetary policy due in less than six months, Osborne needs to find a replacement to take charge of areas from economic forecasting and analysis to the BOE’s markets divisions. The Treasury may advertise as soon as this week for applications, according to a person with knowledge of the matter who asked not to be identified because it isn’t yet public.
The appointment will mark the latest step in an overhaul that saw Osborne disband the financial regulator and shift its powers to the BOE. He then overlooked central bank staff to hire outsiders including Governor Mark Carney, who revamped policy by introducing forward guidance. Selecting Bean’s replacement will require him to consider the need for consistency at the BOE by choosing an insider and also take into account criticism of the lack of female policy makers.
“He’s got to get someone that Carney’s happy to work with, and Carney is going to want someone he trusts,” said Steven Bell, an economist at F&C Management Plc in London and a former Treasury official. “Having set up this structure, he’s going to want to give it a degree of support.”
Bean, 60, will retire on June 30. He was due to leave in 2013, but agreed to stay an extra year to assist Carney -- the first foreigner to run the three-century-old BOE.
Osborne has already made his mark on the BOE by luring Carney from the Bank of Canada and promoting the shift to forward guidance. In a break from his predecessor, Mervyn King, Carney introduced the framework in August, saying policy makers wouldn’t consider raising the key interest rate at least until unemployment dropped to 7 percent.
The chancellor created a third deputy governorship to oversee regulation, appointing Andrew Bailey early last year. Osborne also picked Jon Cunliffe, who was the U.K.’s permanent representative to the European Union, to replace Paul Tucker as deputy governor for financial stability starting Nov. 1.
Choosing another outsider would mean the top three monetary policy jobs are all filled by people with no career history at the central bank. While that may send a signal to staff that their promotion chances have become slimmer, it may not create much additional disruption for an institution already undergoing a transformation.
“The bank’s already changing anyway with the departure of King and Tucker, and with a shift away from things that previously had been set in stone,” said Richard Barwell, an economist at Royal Bank of Scotland Group Plc in London and a former central bank official. “What should be absolutely non-negotiable is that they choose a woman.”
There’s been no female member of the nine-member Monetary Policy Committee since Kate Barker left the panel in 2010. The last female deputy governor was Rachel Lomax, who served from 2003 to 2008. Carney said in August that the gender imbalance is “striking” and the BOE needs to nurture female economists.
The Federal Reserve is leading other central banks appointing women to top policy roles, with the selection of Janet Yellen to replace Chairman Ben S. Bernanke. Sabine Lautenschlaeger has been nominated to the European Central Bank’s executive board, which would redress a lack of female policy makers at the Frankfurt-based institution.
After appointing Cunliffe as a BOE deputy governor last year, the Treasury declined to disclose the number of female applicants for the post. It said in November that the small pool of potential applicants meant that to do so would risk revealing their identity.
Prominent U.K. female economists include Lucrezia Reichlin, professor at the London Business School, Diane Coyle, director of consultancy Enlightenment Economics, and Sheila Dow, emeritus professor at the University of Stirling. Within the civil service, Melanie Dawes, director general of the Economic and Domestic Affairs Secretariat at the Cabinet Office, previously worked as an economist and spent 15 years at the Treasury.
One possible internal candidate to replace Bean is the BOE’s current chief economist, Spencer Dale.
Both Bell and Barwell indicated that the new deputy governor ought to be a top academic economist with the macroeconomic expertise to shape monetary policy. Before joining the central bank, Bean taught at the London School of Economics.
The incoming deputy governor will have to accept the BOE’s new activism as it steers the guidance framework through early challenges. With the labor market recovering faster than officials had forecast, some economists say the bank may have to lower its guidance threshold next month.
“It’s important to have an academic expert on the committee because what we’ve learned in the last five years is that we don’t really understand the economy,” Barwell said. “The person who’s leaving is a very well-respected academic economist, and it would seem sensible and prudent to replace like with like.”