Fears over King's appointment

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The Independent Online
THE TREASURY was worried the appointment of Mervyn King as Governor of the Bank of England would be seen as a clear signal of its views on interest rates and membership of the euro, it emerged yesterday.

Documents released under the Freedom of Information Act revealed that Mr King beat off five other candidates to win Gordon Brown's approval for the top job at the Bank. But the Treasury refused to publish the names of the unsuccessful candidates and declined to make public its reasons for keeping them secret.

In a briefing paper entitled "New Governor - Points to Watch", civil servants highlighted sensitive issues over Mr King's selection such as his pay and the secrecy of the appointment process.

On interest rates they said there might be suspicions that the appointment of such a well-known inflation "hawk" meant that interest rates were set to go up. The suggested reply said it was "wrong to conclude that Mr King's appointment has any message for short-term interest rate decisions".

Since he took the reins at the Bank in June 2003, the Monetary Policy Committee has cut rates once and then raised them five times. The note warns that Mr King "does not favour early entry" into the euro and asks whether his promotion must mean the outcome of the five economic tests would be negative.

Mr King was appointed in April 2003, two months before the Chancellor announced the UK had failed all but one of the five tests for euro membership.

The note also confirms that the Treasury had appointed Mr King before Sir Edward George's retirement to "limit unhelpful speculation".

The Treasury had been accused of dragging its feet for so long over the appointment of Sir Andrew Large as a deputy governor that the MPC was left with eight out of the normal nine members for one month in 2002.

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