The choice of 'Rock Steady Eddie', a strong-willed monetary technocrat deeply committed to the independence of the Bank from political control, is likely to re-establish the Bank's reputation as an important counter-weight to the Treasury's power over interest rates.
Rupert Pennant-Rea, 45, editor of the Economist, was appointed as Mr George's deputy. A former economist at the Bank, and also a strong proponent of central bank independence, Mr Pennant-Rea once said he approved of Britain's membership of the exchange rate mechanism because it would put free- spending politicians under the thumb of the German Bundesbank.
A recent Economist leading article, clearly written by Mr Pennant-Rea, said: 'The next head of the Bank must be . . . forceful enough for the Bank to be not merely independent but seen to be.'
Although the Prime Minister and the Chancellor oppose giving the Bank independent control over monetary policy, Mr George, 54, said that the Chancellor had for the first time given the Bank a clear 'mandate'.
In an unusual statement with faint echoes of the Bundesbank charter, Norman Lamont said the new Governor's responsibility was 'to support the Government in its determination to bring about a lasting reduction in the rate of inflation, the only sound basis on which sustainable growth and secure jobs can be built'.
If Mr George tries to make the Bank more independent in the pursuit of price stability, he will be able to rely on the support of several senior ministers, such as Michael Heseltine, President of the Board of Trade. Howard Davies, the head of the Confederation of British Industry, recently said he saw Bank independence as inevitable.
Mr George is a strong character. He has been known to stop Whitehall conversations about policy options with the simple but firm statement: 'The markets will not wear it.'
A heavy smoker, he attended Dulwich College and Emmanuel College, Cambridge. He has lived in Dulwich, south London, all his life and is married with a son and two daughters.
He has spent 30 years in the Bank after leaving Cambridge with an economics degree in 1962. As deputy governor, he has, in effect, run the Bank, chairing a committee that takes both day-to-day and strategic decisions.
Mr George's candidacy has recently been under a cloud because of the Bank's failure to prevent fraud at the Bank of Credit and Commerce International. Lord Justice Bingham's report on BCCI criticised Mr Leigh- Pemberton, and also, to a lesser extent, Mr George, who had the main supervisory responsibility.
There has also been muttering about the quality of the Bank's advice during the defence of sterling before its enforced departure from the European exchange rate mechanism on 'Black Wednesday' last September. None the less, Mr George is likely to be welcomed in the City and in Parliament as a safe pair of hands. He said yesterday that the appointment of Mr Pennant-Rea would bring some 'fresh air' into the Bank.
Mr Pennant-Rea, 45, joined the Economist in 1977 and has been editor since 1986. Married for the third time to Helen Jay, daughter of Lord Jay, he worked at the Bank for four years in the mid-1970s.
He was approached by Downing Street only yesterday morning. 'To use the Chris Patten phrase, I was gobsmacked.' In the afternoon he discussed with Mr George his approach to the Bank and its role.
The full pay of the Governor last year was pounds 192,000, but Mr Leigh-Pemberton waived pounds 28,000. The deputy governor's salary was pounds 165,000.
A number of external candidates are thought to have been considered for the post of Governor. They included Sir David Scholey, head of the leading merchant bank S G Warburg, and Sir David Walker, one of the City's foremost regulators and a former official at the Bank. Another possibility was Sir Dennis Weatherstone, head of J P Morgan in New York.
But the role was less attractive without John Major's commitment to greater independence for the bank. Yesterday right-wing Tory MPs criticised him for rejecting that idea. One decisive factor which swayed the Prime Minister was the sensitivity of interest rate policy.
A government source said: 'We have a high level of home ownership, which means a huge sector of the population is affected by changes in the interest rate. We could not contemplate having these decisions taken by an organisation that is not democratically accountable to the electorate.'
But it will intensify the battle with right-wing Tory MPs over the Bill to ratify the Maastricht treaty, which commits the other partners to the creation of a European system of central banks. Although they oppose the Bill, some right- wingers believe an independent bank would deliver low inflation.
Some Tory MPs are planning to demand a government statement next week during the Bill's committee stage, although Britain has an opt-out on economic and monetary union. They will seek to join forces with Labour MPs, who want a democratically controlled European central bank.
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