Andrew Bailey faces a host of challenges as next Bank of England chief

The head of the FCA may be able to take the bank in a new direction, writes Phil Thornton

Bailey has been announced the new Bank of England governor (Reuters)

Andrew Bailey will inherit a bulging in-tray when he moves over from running the UK’s premier financial regulator to become the new governor of the Bank of England next year.

A backdrop of weak growth and low inflation, the potential impact of Brexit, the challenge of forging a new regulatory relationship with the European Union and an ongoing debate about what central banks can do to help tackle climate change await him.

“He’s considered a safe pair of hands, but he will face many challenges during his eight-year term, such as protecting the bank’s independence from outside influences and any inside bias,” says Paul Dales, chief UK economist at Capital Economics.

But one burden that he will not inherit from his predecessor Mark Carney is a government and parliament split by ugly rows over Brexit.

By the time Bailey, who is currently head of the Financial Conduct Authority (FCA) takes over on 16 March, the UK will have legally left the EU.

He is also less likely to get embroiled in spats with the Treasury over Brexit, as earlier this year he indicated Britain’s departure gave the UK an opportunity to construct financial conduct regulation in a “rather different way”.

Carney was seen by many Brexiteer Conservative MPs as a closet Remainer for his repeated warnings about the potential negative economic impact of Brexit, and the Treasury may have taken that into account when choosing Bailey.

With an eight-year term lasting up to 2028, Bailey, aged 60, will have an opportunity to take the Bank of England in new directions if he wishes.

There is a vigorous academic debate underway over the need for the bank to undertake a wholesale review of monetary policy strategy, including its interest-rate target and to improve how it communicates with financial markets.

The first meeting of the Monetary Policy Committee is not until 26 March, so City traders will be looking for signs of Bailey’s stance on monetary policy, as his 30-year career at the Bank of England, the Prudential Regulatory Authority and the FCA has never seen him sit on the interest-rate committee.

Elizabeth Martins, a senior economist at HSBC, says it is hard to tell where Bailey stands on the spectrum of hawk (likely to hike rates) and dove (preferring lower rates).

“Mr Bailey is not a renowned dove or hawk or outspoken political commentator. He is an experienced technocrat – and his appointment suggests continuity,” she says.

Bailey’s appointment completes a shift of leadership at three of the world’s top central banks; away from star economists towards financial regulators and lawyers.

The new governor saw off competition from Minouche Shafik, head of the London School of Economics, and former US Federal Reserve governor Kevin Warsh.

On the other side of the Atlantic, Donald Trump, the US president, picked lawyer Jerome Powell to replace career economist Janet Yellen at the Fed, while former IMF chief and lawyer Christine Lagarde has taken over the reins at the European Central Bank (ECB) from Mario Draghi.

Martins, of HSBC, says Bailey might delegate responsibility for monetary policy to a deputy governor such as former Goldman Sachs economist Ben Broadbent, as Eddie George did in the 1990s.

“The market could end up looking to Mr Broadbent or other MPC members for guidance more than in the past,” she says.