Labour's brave new world takes shape

City pleased with appointments of Clementi and King

The Government announced the appointment of two new deputy governors to the Bank of England yesterday, pleasing the financial markets with its choice of a prominent investment banker and the Bank's highly respected chief economist.

David Clementi, leaving his job as vice-chairman of Kleinwort Benson, and Mervyn King, architect of the Bank's quarterly Inflation Reports, were widely seen as likely to be tough on inflation and independent-minded.

Mr Clementi's appointment as deputy to Governor Eddie George was leaked last weekend and was revealed by Dresdner Bank, Kleinwort Benson's parent, when it reported its results this week. However, the Government's decision to name Professor King for the other deputy governorship, which will be created in the autumn by the new Bank of England Act, came as a surprise.

His elevation was viewed positively by many City economists. "He is the best choice they could have made," said David Mackie at JP Morgan. Professor King is seen as a leading candidate to become the next Governor of the Bank if the Government decides not to renew Mr George's contract next year.

Professor King joined the Bank as its chief economist in 1990 from the London School of Economics. His academic reputation had been cemented by his research on taxation, which helped shape the simplification of income tax and the use of the tax system to encourage saving.

He has played a crucial role in creating the inflation target framework for monetary policy and in restoring credibility after the fiasco of "Black Wednesday" when the pound dropped out of the exchange rate mechanism.

Professor King's presentation of the quarterly Inflation Report has helped carve him a high profile. He is seen as too hawkish by some commentators and has a reputation for not suffering fools gladly.

Mr Clementi's views about inflation and interest rate policy are unknown, but analysts were reassured by his prominence in the Conservatives' privatisation programme. He joined Kleinwort Benson in 1975, having qualified as an accountant at Arthur Andersen. As joint head of the bank's corporate finance division from 1989, he is credited with having rescued the privatisation of the electricity industry from disaster. He was also involved in the British Gas and Cable & Wireless sell-offs.

Professor King will have responsibility for monetary stability and the inflation target, while Mr Clementi will be responsible for financial stability and the running of the Bank of England. The appointments were part of Gordon Brown's reshaping of the Bank of England and of financial regulation. The deputy governors' salaries will be similar to the pounds 184,083 Mr Davies received last year.

Both deputy governors will join Eddie George on the monetary policy committee, which votes on the level of interest rates each month. Two other executive directors of the Bank, Ian Plenderleith and whoever replaces Mr King as chief economist, also have places on the committee, alongside four outside experts nominated by the Chancellor. On balance, the committee is expected to nudge interest rates up by another quarter point to 7 per cent next Thursday.

Comment, page 21

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