Bank of England Governor Mark Carney said on Monday he will stay in his job for an extra year until the end of June 2019 to help smooth Britain's departure from the European Union, but he will depart two years short of a full term.
Criticism from some senior ruling Conservatives and right-leaning newspapers had prompted speculation over the past week that Carney might even leave before the end of his initial term, set to end in 2018.
But in his letter to the Chancellor on Monday evening, Mr Carney said he made a decision to stay on until 2019 because he recognised "the importance to the country of continuity during the UK's Article 50 negotiations".
The Canadian will not take up his option to leave in 2018, but at the same time has declined to serve the full eight-year term that would have seen him stay on at the British central bank until 2021.
The senior London-based analysts and investors Reuters talked to on Tuesday said that might come back to haunt the pound - already down nearly a fifth in value since June - but would be of secondary importance to the Brexit process.
Archer says: "Yes, the Bank was too pessimistic in its analysis of what was likely to happen to the economy in the immediate aftermath of a Brexit vote, but so were the vast majority of economists". May has pledged to trigger article 50, beginning the process of the United Kingdom leaving the European Union, by the end of March 2017. In reply, Mr Hammond said he was "very pleased" by Mr Carney's decision.
"I am grateful for your contribution to both monetary and financial stability to date, and I look forward to your continuing contribution in the future".
His announcement followed a meeting with May in which the prime minister gave the governor her full backing for his handling of interest rates and called on him to stay to help steer the United Kingdom economy through the post-Brexit vote period.
"Recognising the importance to the country of continuity during the UK's article 50 negotiations, and notwithstanding those personal circumstances, I would be honoured to extend my time of service as governor for an additional year to the end of June 2019".
Some Tory Eurosceptics had been critical of Carney's decision to issue warnings about the economic implications of a Brexit ahead of the 23 June referendum.
Asked before the announcement whether Mrs May wanted him to stay on, the PM's official spokeswoman told a regular Westminster news briefing: "The Prime Minister has been clear in her support for the governor and the work he is doing for the country".
Andrew Tyrie, chairman of the House of Commons Treasury committee, welcomed the "much needed clarification", saying: "The less uncertainty the better".
This began when May used her speech at the Conservative party conference to question the "bad side-effects" of ultra-low interest rates and the Bank's money creation programme.