LONDON • Theresa May’s resignation threatens to turn the race to lead the Bank of England (BoE) on its head.
A new prime minister (PM) — and the new chancellor of the Exchequer that might accompany them — could have very different priorities from May and Philip Hammond, potentially opening the door for a different slate of candidates for the top BoE job. The finance chief is the one formally responsible for making the appointment.
The PM’s decision also ups the uncertainty faced by the UK, which Hammond has previously acknowledged could deter candidates. Potential governors don’t have long to make up their mind. The closing date for applying for the BoE role is June 5 — two days before May will stand down — with a decision due in October. A new PM is likely to be in place by the end of July.
“Not only do we not know who’s in the running and who is actually possible, but we also don’t know who is going to be making that choice — or, to be honest, even which party may be making the decision,” said George Buckley, chief UK economist at Nomura in London.
If a Brexiteer succeeds May, it could lead to an awkward end to the tenure of Mark Carney, who is set to leave the role in January. In the meantime, the change of leadership leaves the Canadian facing a tricky policy dilemma of whether he should keep preparing the ground for the interest-rate hikes he said are needed while further uncertainty stalks the economy.
Carney has come under frequent criticism from anti-European Union politicians, many of whom consider him to have been overly gloomy on Britain’s prospects. While Hammond has been a more sympathetic ear in the Treasury, the relationship could be more strained if one of Carney’s prominent critics takes the role.
In a Bloomberg TV interview last Friday, Roger Bootle, chairman of Capital Economics and a member of pro-Brexit group Economists for Free Trade, said that a new chancellor was almost certain.
“I would be very surprised if any new PM stuck with the current one,” he said.
While a Brexiteer PM might add some unexpected names in the race to replace Carney, a more orthodox candidate can’t be ruled out — especially if they are looking for a safer choice to burnish their economic credentials.
Jacob Rees-Mogg, an arch critic of Carney, suggested last year that Andrew Bailey, the CEO of the Financial Conduct Authority, and BoE chief economist Andy Haldane — two men regularly cited as potential replacements — could take the job.
If front-runner Boris Johnson prevails, former advisor and pro-Brexit economist Gerard Lyons could be a potential choice for the central bank.
Hammond said the next BoE governor should have international status, prompting speculation that former Reserve Bank of India chief Raghuram Rajan could be in the frame. May, a former BoE economist, has also encouraged women to apply for the role.
Of course, the decision might not even be in the gift of the Conservative Party. If the leader calls a general election to buttress their position, Labour could seize power for the first time in almost a decade. The Opposition party has explored proposals to change the BoE’s mandate, including targets for house-price inflation, productivity and climate change. — Bloomberg