Lyons as Carney Successor Could Mean Different BOE

(Bloomberg) -- One contender to be Bank of England governor recently tipped by bookmakers could augur a rather different way of thinking at the institution.

Pro-Brexit economist Gerard Lyons became the frontrunner this week, according to Betway, in tandem with the appointment as prime minister of his former boss, Boris Johnson. The new premier has just populated his cabinet with allies, and punters may now be betting he could repeat that with the leadership of the central bank.

Lyons, 58, was previously chief economic adviser to Johnson when he was mayor of London, and has views on Brexit, regulation and even the BOE’s mandate that all differ significantly from the bank’s current stance. Naming a replacement to Mark Carney is one of the most important economic decisions the new premier and incoming Chancellor of the Exchequer Sajid Javid will take before the U.K. leaves the European Union on Oct. 31.

“He would have a more upbeat view on the prospects of Brexit, be it no deal or otherwise,” said Azad Zangana, an economist at Schroder Investment Management in London and a former U.K. Treasury official. “It would be quite controversial given he’s got little experience of monetary policy.”

For former BOE policy maker Martin Weale, the job of governor has become a “poisoned chalice” because of the politics surrounding it. If the government wants to appoint someone who supports Brexit, they’ll have a “fairly short shortlist,” Weale told BBC Radio 4 on Friday.

Now an economic strategist at Netwealth Investments, Lyons began his career in the City of London just as Margaret Thatcher was deregulating Britain’s finance industry, and worked as an economist at banks including Standard Chartered Plc.

While there in early 2008, he predicted the Federal Reserve would slash interest rates from 3.5%, possibly to 1%. Two years later, he and his team spoke of a “super-cycle” to describe how the world economy may be entering a period of long-term growth, highlighted by the shift of power to China and emerging markets. It predicted bond yields would fall to new lows before eventually rising over coming decades. In 2010-2011, Standard Chartered was ranked as the no. 1 firm for global economic forecasting by Bloomberg News.

Lyons co-founded the Economists for Brexit during the 2016 referendum campaign to make the economic case for leaving the EU. He later co-wrote a book called “Clean Brexit.”

Lyons was interviewed for the governor role, according to the London-based Times, while former Chancellor Philip Hammond was preparing a shortlist of candidates for his own successor to choose from.

Lyons wasn’t directly contacted before publication of this story.

“I’m flattered to be associated with such an important role,” Lyons said on Monday. “But I’m very happy doing my current portfolio of roles and I’ve not commented on any of these rumors since they began.”

Lyons often shares views on economic matters in research and newspapers. Here are some of them:

Brexit

Lyons has struck an upbeat tone on the U.K.’s prospects outside the EU, in contrast to Carney. He advocates reaching a trade deal with the bloc as “desirable” and says leaving without one could produce an economic shock, according to an article this month in the Daily Telegraph. Still, he argues the U.K. should prepare in case that happens and in order to strengthen its bargaining position.

Monetary Policy

Lyons’s view at the current juncture chimes with that of the BOE. He wrote for Netwealth this month that the economy either stagnated or shrank in the second quarter, but that talk of a recession is premature and that there may even be a pickup due to inventory building. The BOE should exercise “vigilance” on inflation, though it should also be ready to stimulate the economy in the event of a no-deal Brexit, he said.

Bank Lending

Britain should act to boost lending to smaller businesses, Lyons wrote in the same article. The BOE’s economic safety net for banks, known as the counter-cyclical capital buffer, may need to be loosened to encourage that, he said.

BOE Mandate

The bank’s 2% inflation target should be reconsidered, Lyons wrote in the Financial Times this week. He suggested the BOE should look at other countries when reevaluating its mandate. Central banks around the world, including the European Central Bank, have been debating whether to alter what they’re aiming for.

Regulation

Financial regulation “has swung, like a pendulum, from one extreme of being too light-touch before the crisis, to the other extreme now,” Lyons said in a Netwealth report. He also wrote in The Times that “a key message for the U.K. after Brexit will be that financial centers thrive based on the regulatory environment and on ensuring an attractive location where clients want to do business.”

His comments seem to go further than those of officials Sam Woods and Andrew Bailey, and contrast with much work done by the BOE since the financial crisis.

Climate Change

One thing Lyons and Carney have in common is a focus on climate change. The central bank’s involvement in preparing the financial system for related risks has been a hallmark of the current governor’s tenure. In The Times this week, Lyons wrote that sustainability “may soon become of critical significance” when it comes to ranking global financial centers.

--With assistance from Silla Brush.

To contact the reporters on this story: Jill Ward in London at jward98@bloomberg.net;Olivia Konotey-Ahulu in London at okonoteyahul@bloomberg.net

To contact the editors responsible for this story: Fergal O'Brien at fobrien@bloomberg.net, Craig Stirling, Lucy Meakin

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