Both men have advocated an independent Bank of England, as does this paper. In a brief statement welcoming the appointments, Norman Lamont, the Chancellor of the Exchequer, indicated that this was not to be. But the Chancellor gave the Bank a clearer mandate than ever before when he said that he had 'made clear to the new governor that his central responsibility should be to support the government in our determination to bring about a lasting reduction in the rate of inflation'.
So the Bank is, for the present, to remain a junior partner rather than an independent player. But the more explicit mandate, coupled with the changes in the conduct of monetary policy that the Chancellor announced in October, give the Bank an opportunity to capture ground by stealth. It has the chance gradually to develop as a convincing counter to the formidable power of the Treasury and to exercise an effective veto over an unduly lax or otherwise irresponsible policy of which the governor disapproves. In particular, in the hands of an astute and successful governor, the Bank's quarterly reports on the monetary performance of the Treasury could be expected to come to carry great weight. The first of these is to be published next month.
The other main area of responsibility carried by the Bank is for the supervision of the banking system. It is here that the Bank has proved least successful. Mr George has been deputy governor since 1989, an era which included the final years when the institution was so ineffective as a supervisor of the Bank of Credit and Commerce International. Although he had never worked in the supervision department, Mr George must bear some of the moral responsibility for the distressing level of incompetence identified by the Bingham inquiry into the BCCI collapse.
Mr George said, when his appointment as governor was announced, that the Bank should retain its supervisory functions. His conclusion agrees with that reached by Bingham. But close readers of the Economist may assume that Mr Pennant-Rea supports the creation of a separate banking control board such as exists in Germany and the United States. He is right to do so and he should ensure that discussion of the possibility is not allowed to die away.
The first big challenge for the new regime is some time away. The Bank does not need to press for higher interest rates at the moment. On the contrary. But, in a few years' time - in pursuit of Mr Lamont's mandate - the Bank might think it necessary to call for a rise in rates to protect the country against inflation. At which point, Mr George's much-commented-upon steadiness and toughness will be needed - as will Mr Pennant-Rea's journalistic skills.Reuse content