O'Donnell favourite to succeed Mervyn King

City economists have shortened the odds on Lord O'Donnell becoming the next Governor of the Bank of England after warning that Paul Tucker's chances have been damaged by his involvement in the Libor scandal.

"It's certainly damaged his [Tucker's] reputation. It's something he'll have to come back from. Things aren't looking good," said Andrew Goodwin of the Ernst and Young Item Club.

"If it comes to light that he's heavily implicated it will do him a lot of harm," said Peter Dixon of Commerzbank. "It will probably shorten the odds on Gus O'Donnell, a clean pair of hands," Mr Dixon added.

Mr O'Donnell, pictured, the former head of the Civil Service, has indicated his interest in the job. Sir John Vickers, who headed the Independent Commission on Banking, is also being mentioned in the Square Mile.

Until the Libor scandal broke, Mr Tucker was widely regarded as the leading candidate to replace Sir Mervyn King when the present Governor steps down in June 2013.

Some City analysts said Mr Tucker's close collaboration with the Treasury in setting up the new lending scheme had initially boosted his chances of being chosen by the Chancellor. One said: "He looked a shoo-in after funding for lending, when he worked closely with the Treasury. The balance has changed now."

Many analysts said he could yet clear his name but that it would be hard for him to reach the top job.