The Bank of England governor, Andrew Bailey, has come under fire for failing to predict prices would would increase by so much and for not acting sooner to tame inflation. Although Russia’s invasion of Ukraine fuelled price rises in other parts of the world as energy costs soared, inflation has since slowed in many parts of Europe and the US. In the UK, however, it has remained stubbornly high.
The result of persistently high inflation is that the Bank has rapidly raised interest rates, from 0.1% in December 2021 to 5% on Thursday, causing panic among millions of homeowners facing the prospect of sharply higher borrowing costs.
Asked on Thursday if the prime minister thought Bailey was doing a good job, his spokesperson said Rishi Sunak “fully supports” Bailey. But if that were to change, what’s the process for finding a new Bank governor – how is he hired and how could he leave?
Who appoints the Bank of England governor?
Adverts for the role of central bank governor typically appear on a government website and in the Economist magazine when the term of the incumbent is coming to an end. Candidates are sifted by a small team in the Treasury before being interviewed by the chancellor – though sometimes there is only one candidate on the list before the process starts.
That was the case in 2003 when Mark Carney, who as a Canadian was the first foreigner in the role, was appointed. The then chancellor, George Osborne, had spent a year pursuing him.
Technically, the monarch makes the appointment based on the advice of the chancellor.
Who appointed Bailey?
Theresa May’s chancellor, Philip Hammond, began the search for a successor to Carney in 2018, a year before he was due to quit.
Boris Johnson’s first chancellor, Sajid Javid, found himself in the hot seat in December 2019 when a decision on the next governor was needed. He was widely viewed at the time as having taken few risks by appointing Bailey – a longstanding employee at the Bank.
Does anyone review the appointment?
MPs on the Treasury select committee hold a hearing to review the appointment and interview the candidate, but only after the fact, making it difficult to reverse in reality. Several MPs were unhappy that Bailey had been boss of the City regulator, the Financial Conduct Authority, during a period of high-profile scandals.
How long is the governor’s term of office?
The term of office has varied in recent times. From 1997 to 2010 it was a maximum of two five-year terms. George Osborne extended the terms to eight years, but Carney restricted himself to a five-year term from 2013, only to extend it until 15 March 2020 while under heavy pressure to oversee the Brexit transition. When Bailey took over, he signed up for an eight-year term ending on 15 March 2028.
Can the governor be sacked?
Sunak or the chancellor, Jeremy Hunt, could tell Bailey they have lost confidence in him. Bailey would almost certainly resign. But there are few precedents and most governments are reluctant to ditch a Bank governor in the midst of a crisis.
Gordon Brown came under pressure in 2007 to shred the renewal offer to Lord King after the governor was widely regarded to have mishandled the Northern Rock crisis. Brown set aside concerns that King was out of touch with the banking sector and opted for continuity. King got the nod in January 2008 only to find himself blamed for misunderstanding the global impact of the sub-prime housing crisis in the US, which triggered the 2008 banking crash.
Lord Cromer, a Bank governor in the 1960s, refused a second term after falling out with Harold Wilson. Cromer accused of the Labour prime minister of failing to rein in spending.
• This article was amended on 23 June 2023. Owing to an editing error, an earlier version omitted the year 2021 when stating that interest rates had risen “from 0.1% in December 2021”.
