Bean appointed Bank of England deputy chief

Interest rates were more likely to rise as a result of the new composition of the Bank of England’s monetary policy committee, economists said on Thursday, as Mervyn King, the governor, gained more authority over the MPC.

The remarks came as Charlie Bean, the Bank’s chief economist, was appointed deputy governor, drawing a line under a month of public wrangling, while Spencer Dale, a career economist at the Bank, was promoted to chief economist.

Alongside Mr King’s tough Mansion House speech on Wednesday, the appointments were enough to send interest-rate futures markets higher. They rose to indicate expectations of close to four quarter-point interest rate rises in the next 12 months – up from just over two rate rises, and back to where expectations were at the start of the week.

Interest-rate futures first plummeted then surged this week as the Bank’s communications messages were perceived to have flipped and flopped, according to economists and traders, with the Bank one day sounding soft on inflation and the next tougher than ever before.

Sending messages to markets is one of the specialities of Mr Dale, who has recently spent time at the US Federal Reserve investigating the communication of policy decisions. He has suggested that central banks should stay silent when they are unsure of the facts to avoid confusing the markets – so he will have taken particular interest in this week’s fluctuations.

As a new MPC member, his votes will be scrutinised closely to see how they alter the balance on the committee. He has succeeded at the Bank as a close associate of Mr King, and economists who know him think he is likely to be at least as hawkish as the governor.

Michael Hume, of Lehman Brothers, said of his appointment: “This is likely to tighten the governor’s grip [on the MPC] and may result in a more hawkish monetary policy stance, given Mervyn King’s consistently hawkish voting record.”

Mr Bean, an academic economist respected in the City, will take over as deputy governor from Rachel Lomax, a career civil servant, next month. He was favoured by the Treasury over Paul Tucker, the Bank’s head of markets. Mr Bean insisted he was “committed to ensuring that the MPC is properly equipped to steer the economy through the challenging times ahead”.