01/07/2013 13:27 BST | Updated 31/08/2013 06:12 BST

Mark Carney: The King is Dead, Long Live the King

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When George Osborne hailed Mark Carney as "the outstanding central banker of his generation" he made no effort to play down the expectations the nation is placing on the shoulders of the new Governor of the Bank of England. Commentators in Canada are keen to play down the economic genius of Carney, saying he was merely one player in Canada's relative financial success, and that he leaves the country with a growing housing bubble and an overvalued currency. According to the voices in Parliament though, Carney is the UK's modern day Messiah.

As the first non-British Governor in the Bank's 319 year history, the problems Carney faces are great. He faces an economy where - five years on from the crisis - GDP is forecast to grow by just 0.9 per cent in 20131, despite prolific efforts from the government and the Bank of England, using tools such as the unconventional monetary policy of quantitative easing. Carney himself stated that he was "going where the challenges are greatest".

Carney is known as the calm head that saved Canada from the worst of the 2008 financial crisis, using forward thinking to slash the overnight rate and introducing the conditional commitment, where interest rates were kept fixed at record lows for a year. His ability to act quickly is in stark contrast to the slow movement and denial that anything was wrong by Mervyn King and the Bank of England in the midst of the financial crisis. As chair of the Financial Stability Board, he brings welcome knowledge of monitoring the financial system as the Bank of England prepares to take on new regulatory responsibilities.

But Threadneedle Street is a long way from the comfortable surroundings of Ottawa to which Carney has grown accustomed. He faces a financial sector that is undergoing significant regulatory reform with banks having to meet stringent new capital requirements, alongside gaps in lending targets. While Canadian banks and households with manageable debt were not too badly hit by the financial crisis, the UK financial sector has a fair way to go to restore public trust and the economy faces a long road to recovery.

Carney brings with him his three big ideas seeking to shake up one of Britain's oldest institutions: flexible inflation targeting, guidance in the form of a conditional commitment on rates, and clear communication for households and the markets. While more transparency will be welcomed, flexible inflation targeting especially will be met with mixed reviews from the old guard at the Bank of England, who see no need to raise the inflation target over the habitual figure of 2 per cent. But failures to significantly boost economic growth show that a shake-up of the age-old, comfortable policies may be

exactly what the Bank of England needs.

Despite working for investment banking giant Goldman Sachs for over 13 years, the City cannot expect Britain's second most powerful man in the economy to be their best friend. Carney has proved that, while he is willing to openly engage in communication with the banks, he is not afraid to stand up to the big dogs as illustrated in 2011 when he clashed with a senior bank executive over the issue of new capital requirements. The question now, is where Carney will choose to start.

The issue of how and when to exit the quantitative easing programme hangs over his head, as the debt bought by the Bank of England totals £375bn. However, Carney has stated that there is no rush to implement an exit that would shake the confidence of the markets, pledging to continue the Funding for Lending scheme. He has also warned to expect changes to interest rates that have been at record lows for four years. One guarantee is that, whatever Carney does, everyone will be watching with baited breath.

Time to work your magic, Mr Carney.