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Surprise for the Old Lady in shape of new Governor

Yesterday morning hardly anyone in the UK outside the closed world of central banking had heard of Mark Carney but by mid-afternoon the 47-year-old Canadian was trending on Twitter.

The news that Mr Carney is to be Sir Mervyn King's successor as Governor of the Bank of England came as a complete shock. This was partly because one of Sir Mervyn's deputies – Paul Tucker – was thought to be a shoo-in for the job and partly because Mr Carney, who is at present Governor of the Canadian central bank, explicitly ruled himself out of the running last February.

George Osborne seems to have talked him into taking the job and it appeared to be smiles all round when the Chancellor made the announcement in the Commons. His choice drew praise even from his Labour shadow, Ed Balls.

Mr Carney will be the first non-British Governor, though he plans to take British citizenship. Why did Mr Osborne feel the need to go "outside" and why is he probably the right man for the Old Lady of Threadneedle Street? As regards Mr Tucker, despite his three decades of experience at the bank, he may have been tainted by the exposure of his pally email exchange with the now discredited Bob Diamond when the latter was head of Barclays. By contrast, Mr Carney is a breath of fresh air. Furthermore, the Bank of Canada under Mr Carney had a better financial crisis than its British opposite number. That is partly because, following a banking crisis in the early 1990s, Canadian banks were better regulated. By contrast the introspective and complacent Bank of England was slow to realise the severity of the 2008 credit crunch. It was then reduced to slashing interest rates to a record low and flooding the economy with billions in quantitative easing. Many believe that, having been granted operational independence in monetary policy by Gordon Brown, the bank became overly focused on inflation, to the detriment of the economy as a whole.

Mr Carney would appear to be a safe pair of hands to steady the ship. He will need to be. Essentially, he will have three jobs: controlling inflation (primarily through setting interest rates), monitoring the health of the entire financial system and, from next year, regulating individual banks. This is a far bigger job than Sir Mervyn's.

It will be a huge challenge at a time when the economy is still weak and the banking sector remains fragile. Nevertheless, it is vital that he presses ahead with regulatory reform and opposes attempts by the Government to water down the recommendations of the Vickers Report. Britain needs a financial sector that works for the rest of the economy and banks that are resilient enough to survive future shocks.

Just in case all this does not keep him busy enough, Mr Carney will also be required to consider how the Bank of England would relate to a future independent Scotland and take into account the SNP position that Scotland would retain sterling. There are plenty of challenges facing the new Governor.

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