Economists want King to keep BoE crown

Mervyn King deserves a second term as Bank of England governor because his success at containing inflation outweighs concerns that he contributed to the run on Northern Rock Plc, a survey of economists shows.

Prime Minister Gordon Brown should reappoint King, whose five-year term expires on June 30, said 50 out of 59 economists in a Bloomberg News survey.

Brown has delayed a decision on the job until 2008 as the Labour government faces its biggest crisis since taking office in 1997. Support for the party is the lowest in 19 years, and opposition lawmakers have attacked its handling of the Northern Rock rescue.

While the United Kingdom has enjoyed 61 consecutive quarters of economic growth, analysts predict that a slowdown will end the decade-long surge in house prices.

"His record isn't perfect, but he's done well," said Robert Lind, an economist at ABN Amro Holding NV in London and a former UK Treasury official, who wrote an open letter to the government urging King's reappointment last week.

"There is a significant degree of sympathy with King. He's the only credible, world-class central banker that we have in the UK."

King drew criticism in August and September for initially refusing to follow the European Central Bank and the US Federal Reserve and offer cash to banks to keep markets liquid. King reversed his policy only after Northern Rock savers lined up to withdraw deposits.

The incident forced the government to guarantee all deposits at UK banks and give a line of credit to the mortgage lender worth at least 20 billion pounds.

Economists are less convinced the government will follow their advice and reappoint King, the survey showed.

Of those who gave a prediction, 39 said he will get a second term, while 15 forecast the governor will be replaced.

"Politically, he cannot be considered a safe pair of hands in a crisis," said David Brown, an economist at Bear Stearns Cos in London. "It was bad management to keep your head buried in the sand and then have to do a U-turn."

King has so far opposed moves to help the economy by cutting interest rates, focusing on the risk of inflation from record oil prices instead of growth.

Bloomberg News

(China Daily 11/29/2007 page16)