Mervyn King finally gets five more years as Bank of England chief

Mervyn King defied his critics yesterday to win a second term as the governor of the Bank of England.

The announcement ended months of intense speculation about the future of his position as Britain's most powerful banker.

The former economics professors has endured a turbulent few months over his handling of the Northern Rock debacle.

The Treasury said yesterday that Mr King, who has worked at the Bank since 1990, will remain as governor until 2013.

The Chancellor praised the 59-year-old, who was paid a salary of £281,258, according to the Bank's latest annual report.

Alistair Darling said: "He has played a key role in delivering macroeconomic stability."

A spokesman for Gordon Brown said Mr King has been "a first-rate Governor".

Mr King's contract ends on June 30 and there had been speculation that he would be booted out or would decide to retire.

He has come under fire for the failure to avert the first run on a bank for more than 100 years.

Dramatic scenes of customers queueing round the block to withdraw money from Northern Rock raised questions about the Bank's handling of the affair.

Yesterday, Shadow Chancellor George Osborne said his reappointment was "the right thing to do" - but criticised the Prime Minister and Mr Darling for delaying the announcement.

He added: "Why did Alistair Darling and Gordon Brown dither for months before announcing it? Across the dispatch box, week after week, we have urged the Government to end the unnecessary uncertainty.

"It is difficult to avoid the suspicion that the Prime Minister was casting around for alternatives to the independent-minded Mr King before finally being forced to accept that there was no alternative."

Liberal Democrat Treasury spokesman Vince Cable said: "It is outrageous that he has been messed around by the Prime Minister and Chancellor for so long.

"There appears to have been a concerted campaign by 10 and 11 Downing Street to undermine his position.

"Unlike most, he actually had the guts to suggest that it is not the job of the authorities to run around bailing out greedy and reckless bankers."

Economists welcomed the move. Jonathan Loynes, chief European economist at Capital Economics, said: "He represents a safe pair of hands in what are particularly difficult times both for the financial system and the wider economy."

Mr King faces a rough ride at the Bank's helm, with intense pressure over interest rates and the threat of rising inflation.

Last week, he spoke of the economy having to cope with "distinctly choppy waters in 2008".

• The Treasury rowed back yesterday from plans to protect up to £100,000 of savers' money when banks get into trouble. During the Northern Rock debacle, critics called for the introduction of generous guarantees for life savings.

But the current limit will not be raised significantly, according to a consultation paper published yesterday by the Treasury.

At present, the Financial Services Compensation Scheme gives complete protection only to the first £35,000 held in a bank or building society. Treasury sources suggested that the current limit may only be raised to £40,000, possibly £50,000, but not more.

Before the current scheme was introduced on October 1, the first £2,000 was fully guaranteed, but only 90 per cent of the remaining £33,000.

Yesterday's consultation document pointed out that the current limit protects the 97 per cent of savers who have less than £35,000 in their savings accounts.