Gavyn Davies is top contender for new role in monetary policy
The Chancellor's dramatic move marks the end of the 'Ken and Eddie Show' but will bring new faces into the limelight
Such an appointment would also put Mr Davies in pole position for the governorship when Eddie George's tenure ends next May. He is one of the most respected of City economists - as well as being an Independent columnist - and his wife, Sue Nye, is Gordon Brown's assistant.
The Chancellor's unexpected move, which gave effective independence to the Bank 51 years after it was nationalised by Clement Attlee's landslide Labour administration, marked a dramatic shift in the new Chancellor's attitude to an independent Bank that was greeted with unconditional approval by financial markets. Bond and equity traders now expect inflation and interest rates to stay low and the pound to weaken from its recent strength.
The move, which was dubbed the most far-reaching in the Bank's 300-year history, drew the final curtain on the "Ken and Eddie Show", as the monthly meetings between the former Chancellor Ken Clarke and the Bank's governor Eddie George were affectionately known, bringing to an end the increasingly personalised encounters that had characterised the setting of monetary policy.
The expected appointment of Gavyn Davies to the deputy governorship is part of the creation of a monetary policy committee which will comprise the governor, his two deputies and six other members. Four of the committee will be government appointments who are recognised experts in monetary policy.
Academia is well represented in the list of those being tipped for the remaining slots on the committee, with the odds shortening on David Currie, a London Business School professor and working Labour peer, Charles Goodhart, a former Bank of England adviser who is currently a professor at the London School of Economics, Richard Portes, from the London Business School, and John Flemming, another ex-Bank man from Nuffield College, Oxford.
Runners and riders from the City include Tim Congdon, a Treasury wise person and hard-line monetarist and Paul Mortimer-Lee, chief economist at Paribas.
It is thought an industrialist is likely to feature on the committee, with Sir David Simon of BP a possibility.
The committee will meet once a month to decide whether interest rates need to be changed, using a government-set inflation rate target (currently 2.5 per cent) as a benchmark. Any changes will be announced immediately, with the minutes of the meetings released within six weeks of the meeting.
The removal of interest rate decisions from the Chancellor marks a dramatic shift towards a fully independent central bank.
The new regime is understood to have been modelled on New Zealand's, where the central bank is also charged with meeting a government-set inflation rate target. In Europe, the French and German central banks are given a more genuinely independent remit of achieving "price stability", which they determine.
The proposed changes end the Chancellor's monthly meetings with the governor of the Bank. Norman Lamont established that formal ritual back in October 1992 in the wake of sterling's crash out of the ERM when a commitment arose to keep to a strict inflation target which the Bank would have a part in setting.
It was Mr Clarke's innovation in 1994, soon after his appointment, which saw minutes published six weeks after each meeting, bringing interest rate policy out into the open. The meetings were peppered with sharp disagreements between the Mr Clarke and the Governor.
- 1 What happens to your body when you give up sugar?
- 2 Japanese island overrun with cats after population explodes
- 3 Delhi bus rapist blames dead victim for attack because 'girls are responsible for rape'
- 4 Have sex with your iPad thanks to the new sex toy no-one asked for
- 5 Average penis size revealed: Scientists attempt to find what is 'normal' to reassure concerned men
California teacher appears to have hanged herself in her classroom
The City of the Monkey God: Archaeologists claim to have found city lost for 1,000 years in remote Honduran jungle
Japanese island overrun with cats after population explodes
Delhi bus rapist blames dead victim for attack because 'girls are responsible for rape'
Bubonic plague-carrying fleas found on New York City rats
'Jihadi John': CAGE representative storms off Sky News accusing Kay Burley of Islamophobia
Durham Free School: 'Creationism taught at' free school facing closure
Nearly 100,000 of Britain's poorest children go hungry after parents' benefits are cut
Ukip would cut billions from Scottish budget to fund English tax cuts
End of the licence fee: BBC to back radical overhaul of how it is funded
Ukraine crisis: Top Chinese diplomat backs Putin and says West should 'abandon zero-sum mentality'
iJobs Money & Business
£36,000 - £40,000: Christine McCleave: Are you looking for a new opportunity a...
£15000 - £18000 per annum: Recruitment Genius: This is a great opportunity for...
£50000 - £60000 per annum + Excellent Salary: Austen Lloyd: An outstanding new...
£20000 - £21000 per annum + uncapped commission: SThree: As a graduate you are...