Bank of England governor Mark Carney was considered the rock star of finance, the most powerful man in the British economy. Photo / AP
Bank of England governor Mark Carney was considered the rock star of finance, the most powerful man in the British economy. Photo / AP
A bombshell hit the City of London this week: Mark Carney, the rock star of finance, the most powerful man in the British economy, will only be in his job until mid-2019.
Expectations had been raised that the Governor of the Bank of England would extend his term of office until 2021, staying at the helm through the rough and tumble of Brexit and its aftermath. In fact he will leave almost the moment Britain exits the European Union.
Carney's decision marks the conclusion of weeks of speculation, as an increasingly bitter political row saw noisy Conservatives call for his head, and the Prime Minister reply that she backed him "absolutely".
The once-stuffy world of central banking has been electrified by the rise, fall and potentially now the fightback of Mark Carney. In November 2012, George Osborne stood in the House of Commons to announce the next Governor of the Bank.
He built up to the moment, almost working the crowd, praising the outgoing governor, Mervyn King, and highlighting the "very distinguished candidates shortlisted" for the job.
Then the surprise news: the Bank would, for the first time in its more that 300-year history, be run by a foreigner.
"Britain needs the very best at a time such as this, and in Mark Carney we have got him," said the then chancellor. "Mark Carney is a quality Governor. He is the outstanding central banker of his generation."
Even Osborne's arch-rival, Ed Balls, expressed delight - though that may have been because he was caught off-guard.
Repeatedly, Carney had denied he was in the running, leaving deputy governor Paul Tucker as the favourite. It doesn't take long looking at Carney's CV to see why he got the role.
In 2008 he took the reins at the Bank of Canada, where he was widely credited with guiding the country on a healthy economic course, though there are worries that his loose policies allowed the housing market to get too hot.
Successfully heading a central bank is the crowning achievement of many a financier's career. Carney's was already impressive - Harvard, Oxford, Goldman Sachs. But at 47 he was nowhere close to retirement.
A four-year stint as minister in the Canadian finance department up to 2008 showed signs of his political ambition.
Central banking has been electrified by Mark Carney's fate. Photo / AP
For Osborne, this was all valuable - Lord King clashed with City leaders who felt he did not understand real-life financial markets while Carney has better links with financiers, at a time when the Bank of England was gaining more powers over the industry and the Government wanted to limit banker-bashing.
At the time, the UK wanted to offer the job for a single eight-year term. Mark Carney only wanted to serve five, however. His children's education was one factor, and he had his eye on Canadian politics - five years could mean moving back home in 2018, in time for a bid to become Canada's prime minister.
Osborne was desperate to have the Canadian, so five years it was, as well as a bumper pay packet amounting to more than £880,000 per year.
In the summer of 2013 Carney arrived. He gave his first big speech to companies in Nottingham, setting out a new way of doing business.
Instead of deciding interest rates exclusively in a monthly meeting which kept markets guessing, he would try to set out a longer-term path to raising rates. Forward guidance, it was hoped, would make the Bank's actions clearer, enabling firms and households to plan their finances better, avoiding the shock of an unexpected rate hike.
The first threshold was unemployment - once joblessness fell below 7 per cent, Carney said, the Bank would start looking to raise rates. It could take three years or more to reach that stage, he predicted.
Fortunately for the country, the economy picked up far more quickly and unemployment dived below 7 per cent in six months. But there was no rate rise and forward guidance was quickly dropped.
Heading to the exit: Mark Carney. Photo / AP
Nevertheless, joining the Bank at a time of sharp economic improvement was no bad thing - a key idea had taken a knock, but Carney was still in the good books. In subsequent years the recovery continued, with the decision to raise interest rates always seeming to be just around the corner but never arriving - along with other forecasters, the Bank's predictions frequently underestimated growth and missed inflation expectations.
Global factors pushed inflation down as the oil price dived, leaving prices flat and so giving the Monetary Policy Committee little reason to raise interest rates. Unemployment kept falling yet wages only increased modestly, flummoxing forecasters and again making it hard to raise rates.
Since 2014 the Bank has been reviewing its forecasting abilities and bolstering its team of economists and statisticians.
The once-stuffy world of central banking has been electrified by the rise, fall and potentially now the fightback of Mark Carney
Those internal reforms also fit in with Carney's administrative agenda which he launched to modernise the ancient institution's operations, particularly following the establishment of the Prudential Regulation Authority which oversees the banking sector.
Over in Canada, Justin Trudeau upturned the political landscape last year, sweeping to power with an unexpected victory, apparently closing off Carney's options there and undermining the case for leaving in 2018.
Meanwhile in monetary policy, the Bank of England was edging towards an interest rate rise. As with so much in the world of finance, it began with the US - the Federal Reserve raised interest rates in December 2015.
The Bank of England had already indicated that its next move would probably be upwards too.
Savers cheered, and markets saw the idea as the first hint in years that monetary policy stood a chance of getting back into "normal" territory. Carney was, at last, going to tackle the unprecedented challenge of taking the economy off an emergency footing, and back to higher interest rates.
Events again threw the Governor off track - and this time more seriously. First inflation dived as the oil price collapsed, delaying a rate rise. Then the EU referendum result took the Bank of England by surprise and, as the campaign and its aftermath were so hard-fought, the political criticisms hit hard.
In the run up to the vote the Governor was asked about its implications, replying that the referendum was "the biggest domestic risk" to financial stability. The comment was designed to be mild, yet it raised hackles among some Brexit campaigners.
When Carney said that some banks were engaging in contingency plans for the vote, MP Jacob Rees-Mogg accused him of "doing your reputation and the reputation of the Bank harm".
To critics, it raised the impression that the Bank of England was under pressure to act as a tool of the Chancellor and his "Project Fear" campaign.
Carney won praise on June 24 when he immediately appeared on television, exuding an aura of calm to reassure markets that the financial system was well prepared to cope with the unexpected result.
The image of stability was powerful as the Prime Minister quit and a protracted Conservative leadership battle looked likely.
Yet anger quickly returned when the Bank slashed its economic forecasts in August, chopping interest rates in a bid to boost growth.
Carney won praise on June 24 when he immediately appeared on television, exuding an aura of calm to reassure markets that the financial system was well prepared to cope with the unexpected result.
The forecasts were too gloomy - though only four months have passed since the vote, the early indications are that the economy is holding up reasonably well - leading to new complaints.
Lord Lawson, a former chancellor, called Carney a "doom-monger" who had "joined in the chorus of scaremongering" and should step down.
The attacks have escalated since then, to reach a level of criticism against a serving Governor not seen in recent times, even during the financial crisis.
In Theresa May's speech to the Conservative Party conference, she appeared to criticise the Bank's policies.
"While ... super-low interest rates and quantitative easing provided the necessary emergency medicine after the financial crash, we have to acknowledge there have been some bad side effects," the Prime Minister said. "A change has got to come."
This was seen as a threat to the Bank of England's independence and an indication that the Government could seek to push up interest rates.
Aides quickly clarified that it was not intended as an attack on the Bank or Carney.
The Governor himself was firm: "We are not going to take instruction on our policies from the political side."
The Government has since backed him, with May insisting Carney is "absolutely" the best person for the job.
But it is clear the Governor will face more clashes with critics. An inflammatory quote from an ally - "someone familiar with the Governor's thinking" - in the Financial Times indicating that the Bank is predicting 2018 could be "the darkest days for the UK", created more anger.
The City was desperate for the Governor to stay to 2021. But by leaving in mid-2019, he will exit just months after Brexit's due date.
Like the best showmen, Carney has left his fans wanting more.
The Canadian appears to have played the political game cleverly, turning controversy into a boost for his reputation, resulting in high demand for his services.
We should hope he can pull off his plans for the economy with just as much finesse, particularly on the tight deadline he has now set himself.
