King of threadneedle street: how Mervyn King reshaped the Bank of England.

• Author: Coyle, Diane

There can scarcely ever have been an appointment to high office less controversial than the choice of Mervyn King as governor of the Bank of England. This is not to say he is without critics--more on this later. Nevertheless, he is profoundly respected as one of the key individuals who transformed British monetary policy after the humiliation of the pound's ejection from the European Exchange Rate Mechanism (ERM) in September 1992.

To call the subsequent changes a transformation is no exaggeration. The Bank of England now heads the international league tables in terms of central banking theory and practice. The structure of its formal independence (put in place in May 1997 by the incoming Labour chancellor of the exchequer, Gordon Brown) and its successful implementation of inflation targeting are widely admired. For the Bank's success can be enumerated precisely: 43 consecutive quarters of GDP growth, at a year-on-year rate close to trend, and with inflation an average of just 0.1 percentage point away from the 2.5 percent target since 1997. All this in a country that previously had the highest inflation and most volatile growth rate in the G7.

Before Mervyn King's promotion from deputy governor to the top job was announced last November there wax some press speculation about rival candidates. His well-known hesitation about taking Britain into European Monetary Union was thought to be an obstacle for the Prime Minister, Tony Blair--for like all those who were at the heart of economic policy in 1992, King was scarred by the ERM experience.

But with hindsight, it would have been bizarre for the government to choose anybody else. Why force out one of the architects of the United Kingdom's remarkable economic success in recent years by appointing someone else over his head? And with the other of the two deputy governors leaving at the same time that would have meant newcomers filling all three of the Bank's top jobs; why risk such instability? Continuity triumphed.

Yet King is not at all typical as governors of the Bank of England go. He grew up in the ugly and unfashionable Midlands city of Wolverhampton, and still avidly supports the local soccer team, Aston Villa. He has never worked in the financial markets and wasn't previously a grandee of the City of London establishment. Unlike his predecessor Sir Edward George, he wasn't a life-long Bank of England man either, joining from the London School of Economics only in 1991.

It is his...