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Gieve to go

• Robert Peston
• 18 Jun 08, 07:41 PM

Sir John Gieve is to stand down early as deputy governor of the Bank of England, I have learned.

He is in charge of the Bank of England's operations responsible for the stability of the financial system.

Sir John's departure coincides with an initiative by the Treasury to formalise and beef up the bank's financial stability role.

The unexpected announcement will be made tomorrow, when the Treasury is also expected to confirm that Charles Bean - the Bank's chief economist - is to become the other deputy governor in charge of its monetary policy side.

Charles Bean replaces Rachel Lomax.

It is unclear who will replace Gieve. The Bank of England's senior directors would probably wish the new financial stability deputy governor to be Paul Tucker, the bank's executive director in charge of markets.

The Treasury is refusing to comment on the changes.

Gieve was savaged when interrogated last autumn by the Treasury Select Committee for allegedly being insufficiently on top of the crisis at Northern Rock. His colleagues regarded the attack as unfair.

However Gieve is not a markets specialist. And it is thought that the Treasury wants someone with greater technical knowledge in charge of an expanded financial stability division at the bank.

Gieve was appointed deputy governor in January 2006 and has two and a half years of his term to run.

His appointment was pushed through by Gordon Brown, when he was chancellor, in the face of stiff resistance from the Governor, Mervyn King.

Mr King recently had a battle with the Treasury to have his preferred candidate, Charles Bean, appointed as the replacement for Ms Lomax.

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Debt and inflation

• Robert Peston
• 18 Jun 08, 10:19 AM

The legitimacy of the Bank of England's was never going to be properly established until it was tested by serious economic difficulties - of the kind we're experiencing now.

Which is why I was intrigued by your response to Peter Two-Point-Two's whinge.

Many of the comments sympathised with P 2-P-2. But here's what should cheer up the governor, Mervyn King.

Few of you directed your ire about our economic slowdown at the Bank of England or said that the Monetary Policy Committee should slash interest rates and to hell with the inflationary consequences.

I'll admit to being slightly surprised, because many of those saddled with the biggest debts are also too young to have lived in a Britain racked by endemic inflation. These young Micawbers ought to be able to grasp that inflation bails out those who have borrowed too much, while not having had first hand experience of the damage that would be wreaked to the wider economy.

It's also slightly surprising that neither the government nor the governor have recently felt the need to re-state the case against inflation in a populist way, now that the evil is upon us again - even though there is a vast younger generation that only know of it from folklore and story books.

Instead the Chancellor, Alistair Darling, and the Prime Minister, Gordon Brown are trying to slay the dragon, by "leading" a putative global initiative to curb price rises in oil and food - though many analysts see them as using a toy plastic sword against an indomitable force of nature.

By the way, I can't commend too highly Nick Robinson's note on Brown's intervention in the oil market. Some would say that the mismatch between the prime minister's ambition to squeeze out the oil speculators and his modus operandi may be Pooteresque.

Better, perhaps, for Brown and King to be out there explaining in detail why we dare not risk a spiral of inflationary wage increases, which would undermine the ability of both businesses and households to plan and invest in a rational way.

It is, however, a tough sell.

When Darling in his letter to the governor of yesterday was demonstrating the government's anti-inflation intent by swaggering about multi-year pay deals covering 1.5 million public sector employees, he was on dangerous territory: he was, in effect, boasting that many of them had taken a real pay cut, because these deals were agreed before the great oil and food surge.

Darling did go on to say that "inflationary pay settlements would undermine rather than raise people's living standards with a damaging circle (sic) of wage increases eroded by steadily rising prices".

However, if you've borrowed too much, what you want is the value of money to decline - serious inflation is your best hope of avoiding the full and proper consequences of your imprudence.

Inflation is - of course - profoundly unfair to the thrifty, to those who have saved through thick and thin, because their nest eggs are smashed.

So here's what should worry King and Brown, and even David Cameron and George Osborne. The indebtedness of the United Kingdom - the record borrowings of companies and households - means that the political establishment must not take for granted that they have won the argument against inflation once and forever.

One measure will suffice for now: on figures that are now six months out of date and therefore probably understate the problem, companies and individuals are close to paying out record proportions of income to service their debts: the ratio of interest payments to profits for non-financial companies was almost 30% at the end of last year, perilously near to a peak; and households were paying out more of their income in interest and mortgage repayments than they had been doing since 1991, even before the sharp increase in the cost of fixed-rate mortgage deals caused by the credit crunch.

I shall return to the question of where the burden of borrowing is sharpest soonish, because our economic trajectory will probably depend more on the distribution of debt than on the aggregated weight.

But even these crude statistics capture a serious threat. As growing numbers of households and businesses have difficulties meeting their financial obligations, the pressures from them for an allegedly painless and quick inflationary fix will probably intensify.

There could come a moment when there would be widespread popular unrest at the sort of disclosure we had today from the Bank of England, that only one member of the Monetary Policy Committee at the last meeting voted for a cut in interest rates.

The over-borrowed are a sizeable minority of the electorate, so politicians will find it difficult to ignore their agony - though for all our long term prosperity, politicians will probably need to find a way of feeling their pain without actually doing anything very much about it.

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