PM May backs Carney to stay at Bank of England beyond 2018

By William James and William Schomberg

LONDON (Reuters) - Prime Minister Theresa May backed Bank of England Governor Mark Carney to extend his term on Monday, seeking to dampen political pressure on the central bank chief that has led to speculation he will leave the job in less than two years' time.

Carney has promised to announce by the end of the year whether he will stick to his current departure date in mid-2018 - when Britain would likely be deep in the process of extricating itself from the European Union - or take up an option to stay until 2021.

Speculation has abounded about the future of the Canadian, the first foreigner to run the British central bank in its 322-year history, after May took the unusual step of criticizing the effects of low interest rates earlier this month.

Carney has since faced criticism from some eurosceptic lawmakers in the ruling party who accused him of compromising the bank's independence over his warnings, before the June 23 referendum, of the economic risks of voting to leave the EU.

However a spokeswoman for May said on Monday that the prime minister was "clear in her support for the governor". Asked if he was the best man for the job, she said: "Absolutely."

"It is clearly a decision for him, but the PM would certainly be supportive of him going on beyond his five years," the spokeswoman added. "The PM has always had a good working relationship with the governor of the Bank of England and intends to continue that."

Carney met May on Monday for what his office said was a regular meeting. He is due to hold a quarterly Bank of England news conference on Thursday and could make an announcement on his future then.

The career plans of a man once dubbed the "outstanding central banker of his generation" have gripped financial markets. Some of the recent slide in sterling and rise in government bond yields have been attributed by analysts to the prospect of Carney leaving the BoE.

"If Carney was to stay until 2021 that would somewhat reassure markets," said Hetal Mehta, senior European economist with Legal & General Investment Management

"It would be really unwelcome for (finance minister) Philip Hammond to have to find someone new over the course of next year when he will have a million and one other things to worry about."

PERSONAL

Last week, Carney said his decision whether to stay would be based on personal rather than political considerations, and he would need to find some time to make up his mind. There have since been conflicting media reports about his intentions.

The Financial Times reported on Monday that the Canadian, who joined the Bank in 2013, was ready to serve a full eight-year term instead of five. The BBC also said people close to Carney believed he was leaning towards staying for eight years.

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Those reports contrasted with others in newspapers over the weekend that said Carney was more likely to announce that he would leave in 2018.

Earlier this month, May used a speech at her Conservative Party's annual conference to say low interest rates had had "some bad side effects" on savers and the poor, prompting push-back from Carney who said he would not be told how to do his job by politicians.

May's office later said the comments weren't directed at Carney.

Following May's words, a string of senior lawmakers from her party have ramped up pressure on Carney - saying he had made a series of policy missteps and "debased" the role of central bank governor by making political interventions in the EU referendum debate to warn of the consequences of Brexit.

Before the referendum, Carney and the BoE said Britain risked slower growth, higher inflation and even recession if voters backed leaving the EU, prompting criticism that the BoE was biased and itself destabilizing markets.

"You don't want somebody using being the governor of the Bank of England as a stepping stone to future career opportunities because it ought to be the absolute apex of anybody's career," said Jacob Rees-Mogg, a long-standing critic of Carney.

John Redwood, another leading eurosceptic lawmaker, said the bank had been wrong to cut interest rates to a new record low in August and initiate several other stimulus measures as a response to the referendum result. He also criticized Carney and the bank for misleading markets by trying to flag up interest-rate changes.

"You need a governor with judgment who studies the numbers carefully and says rather less than the Bank of England have been saying in the last year," Redwood said.