Gieve predicts uncomfortable year

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Sir John, who resigned as deputy governor in charge of financial stability on Wednesday, told North East business leaders the current climate was the "most challenging" faced by the Bank in 11 years of independence.

In a speech to the North East Chamber of Commerce, he said: "The next year is not going to be comfortable for anyone and we already hear calls to change the system, the target, and our focus on inflation.

"But the new framework and the independence of the Bank was designed for difficult times as well as for plain sailing."

His comments follow bleak economic warnings from Chancellor Alistair Darling and Bank Governor Mervyn King in their Mansion House speeches to the City this week after inflation soared to 3.3% in May following spiralling oil, food and household energy bills.

Sir John was due to serve until 2011, but will step down next year after reforms to banking laws have been introduced in the wake of the Northern Rock crisis.

These give the Bank of England statutory responsibility for financial stability as well as powers to deal with failing banks.

But the civil servant was last year accused of sleeping on the job during the Northern Rock fiasco in a stinging attack from the Treasury Select Committee. His replacement at the Bank has yet to be announced.

Meanwhile, the Bank's chief economist, Charles Bean, was also confirmed as a deputy governor.

Mr Bean will take over responsibility for monetary policy from Rachel Lomax, who decided not to serve another five-year term when her current one expires at the end of this month.