Tucker the frontrunner as Bank advertises for deputy governor

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The Treasury will open the race to succeed Sir John Gieve as a deputy governor of the Bank of England, with responsibility for financial stability, when it advertises the job this week.

Paul Tucker, the executive director of markets and a member of the Monetary Policy Committee, is the favourite internal candidate to take over from Sir John, who will step down early next year. But Mr Tucker, who was tipped for the post of second deputy governor which became vacant earlier this year following the departure of Rachel Lomax, may have to compete against external candidates. Traditionally, senior Crown appointments have been fixed through informal soundings between the Treasury and the Bank of England, but recent changes have required the jobs to be advertised.

Banking sources say it is inconceivable that Mr Tucker, mentioned as a potential successor to Mr King when he retires in three years, would not succeed. One Treasury source added: "It's extremely unlikely Paul Tucker would not get the job. If he didn't, he would leave, and I don't think anybody wants that."

Mr Tucker lost out to Charles Bean for the previous deputy post, with Mr King arguing that he needed an economist to replace Ms Lomax.

But Mr Tucker's background is more markets-oriented and appropriate for the second deputy role, which includes membership of the Financial Services Authority. Trained as a mathematician, he worked in corporate finance and then as a banking supervisor, helping to reform the Hong Kong markets and the UK's payment systems.

Changes recommended in new banking legislation require the Bank to take on a more robust role in financial supervision. One of the reasons for Sir John's departure was the Treasury's view that he did not have a firm enough grip on financial markets and was caught out in the Northern Rock fiasco.

This week the Bank of England publishes the consumer price index, which is likely to show even higher inflation than the headline 4.4 per cent. On Friday Mr Tucker said he expected inflation to rise further, dampening hopes of an early interest rate cut. But, he added, the economic downturn could eventually see off the threat. "If, in the interests of sustaining growth in the short run, we were to let inflation become established at higher levels, things could easily get out of control as higher medium-term inflation expectations would become embedded."