Bank of England Governor Race Suggests Paul Tucker's Luck Is In

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In terms of gender balance at the top, the Bank of England is as bad as UK plc. The nine members of the monetary policy committee (MPC) are all men, as are the 11 members of the financial policy committee (FPC). Threadneedle Street has three governors and 10 other executive directors, of whom only one – the HR boss, Catherine Brown – is a woman. Lady Rice is the only non-male among the dozen members of the Bank's court of governors.

The Bank and the Treasury, jointly responsible for choosing candidates for key roles, say no bias is involved and that they are trying hard to find women who can set interest rates or keep the City in line. Try a bit harder, chaps. It is really not good enough that a body with such power, and which relies so heavily on public trust, should be so unrepresentative of the population it is serving.

The selection of Sharon Bowles as the next governor would help make the Bank look less like a gentlemen's club, but she is unlikely to be the one named by George Osborne in the next few weeks. Bowles is a Liberal Democrat and chair of the European parliament's economic and monetary affairs committee, both reasons for the chancellor to look elsewhere. The Old Lady will have to wait for her first chatelaine.

Several other candidates are in the running. Originally, Osborne – who is expected to announce his decision in his autumn statement on 5 December – wanted Mark Carney, the highly regarded governor of the Bank of Canada, but his overtures were rebuffed. Carney's name is still mentioned in the list of runners and riders, as is that of Glenn Stevens, governor of the Reserve Bank of Australia. The financial systems of Canada and Australia stood up better than most during the crisis of 2007-09, and oversight of the City is now central to the expanded role given to the Bank of England by the coalition.

The fact that the names of Carney and Stevens refuse to go away despite protestations from both men that they are not interested suggests the Treasury is not entirely convinced about the credentials of the UK front-runners. This impression has been reinforced by reports that a former permanent secretary to the Treasury, Lord Burns, was prepared to do the job on a temporary basis. Burns, 68, is said to be reluctant to commit himself to a full eight-year term, but offered to do four years instead.

As with Bowles, pro-European proclivities may also count against Lord Turner, the chairman of the Financial Services Authority, even though he has now recanted his former support for the euro. Turner would certainly be the most radical choice, and has made it clear that the Bank may need to rummage even deeper in its box of unconventional policy measures to prevent the economy sliding into deflation.

Although he has yet to spell out in public quite what he means, Turner would consider "helicopter drops" of money if things got bad enough. This would involve tax cuts from the Treasury paid for with cash provided by the Bank.

The current governor, Sir Mervyn King, used a recent speech in Cardiff to rain on this idea from a great height, which may be one reason why Turner has drifted out in the betting. The City is also lobbying hard against the FSA chairman following his wholly justified comment that much of what the financial sector does is "socially useless".

Ultimately, though, Osborne might still pick Turner if he thought the Bank's current policy tools – ultra-low interest rates and quantitative easing – were proving ineffective in lifting the economy out of its current rut.

The man the City would like for the job is Paul Tucker, one of King's two deputies. There was a lot of tension between the Bank and the financial sector in the early days of the crisis, with Bob Diamond of Barclays accusing King of delivering sermons on moral hazard rather than support for struggling banks.

Tucker was seen as much more willing to help, which is why the City has been lobbying Osborne strongly on his behalf. Tucker was, however, dragged into the Libor rate-fixing scandal, and the chancellor will have to be sure that none of that mud will stick.

Sir John Vickers is the dark horse in the race. He is the candidate most like the current governor: a first-rate economist, although specialising in micro-economics rather than the big-picture stuff. He has been chief economist at the Bank, run the Office of Fair Trading and chaired the Independent Commission on Banking, set up by Osborne, which called for the high-street operations of banks to be ringfenced from their investment arms. There is a suspicion, though, that Vickers is not really hungry for the governorship in the way that both Tucker and Turner are, and is happier running an Oxford college than he would be the Bank of England.

It is certainly a big job. The FPC must ensure that tougher prudential regulations to ensure the City does not blow up the economy again are not so draconian as to choke off lending altogether. There is a tension between long-term strategy and short-term tactics.

The task facing the MPC is trickier. Britain could easily slide into a triple-dip recession this winter despite interest rates of 0.5% and £375bn of quantitative easing (QE). Yet, despite the weakness of the recovery, inflation is 2.7% and has been above its 2% target for 69 of the past 78 months. Public confidence, according to the Bank's regular surveys, is at its lowest ebb since it was granted operational independence 15 years ago.

King said last week that the MPC had not lost its faith in QE, a clear hint that there will be further asset purchases if growth is lower than expected. On past form it will be, as the Bank's forecasting record is poor, consistently over-estimating growth and under-estimating inflation.

But is more QE really what the economy needs? At a global level, it seems as if money creation by central banks has pushed up commodity prices, adding to the price of food and reducing real incomes, stifling economic recovery. Yet, many households and businesses are in a zombie-like state where they are so heavily reliant on a fix of cheap money that they would go to the wall without it. Macro-economic policy is a mess: it is not working effectively, it is nurturing a dependency culture and there is no obvious exit strategy.

As to who will get the job, the Treasury is giving little away, but those who have bumped into Tucker recently say he is looking remarkably cheerful. He is also odds-on with the bookies, and they are usually right.

Powered by Guardian.co.ukThis article was written by Larry Elliott, for The Guardian on Sunday 18th November 2012 13.18 Europe/London

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