City mourns and pays tribute to rate-setter

Mervyn King and Gordon Brown led the tributes last night to David Walton, a member of the Bank of England's monetary policy committee, who has died suddenly after a short illness.

The Bank said Mr Walton, 43, died unexpectedly on Wednesday evening. He first complained to colleagues of feeling unwell on Monday and is understood to have suffered from kidney failure.

Mr King, the Bank's governor, heard the news at the end of Wednesday night's Mansion House speech. He praised the former investment bank economist, who had become best known in recent months as a lone voice on the MPC calling for higher interest rates.

"David inspired the respect and affection of all his colleagues in the Bank, and today's news has come as a shock to us all, as it will to those who knew him in the City, where he made his reputation as an economist," Mr King said.

The chancellor, who appointed Mr Walton as an external member to the committee, said he was deeply saddened. "David Walton made a great contribution to economics and economic policymaking in this country," he said yesterday.

Mr Walton, a married father of two young sons, studied at Durham and Warwick universities and started his career at the Treasury. He joined Goldman Sachs in 1987 and had risen to the rank of chief European economist when last July he left to join the MPC, the Bank's rate-setting committee.

He proved his independence by voting against Mr King for a cut in interest rates at his first two meetings, the first time unsuccessfully, but last August appearing on the winning side in a five-to-four vote. For the past two months he had voted for rate increases to counter rising inflationary pressures, while the other seven committee members opted to leave borrowing costs at 4.5%.

In his last speech, given on May 18, Mr Walton explained his move to a more hawkish position, saying "the balance of risks has shifted a little too much to the upside on inflation for comfort".

He added that the sharp rise in oil prices since 2003 had had a detrimental impact on the economy's output potential, and that for the time being the UK would have to grow slightly less fast if inflation were to be kept in line with the government's 2% target.

No other MPC members shared his view and interest rates have been left on hold since August.

The pound hit a seven-week low against the dollar, and interest-rate futures rallied after news of Mr Walton's death as traders scaled back the chance of an imminent rate rise.

Kate Barker, one of the other external members of the MPC, said that she was "devastated" by the news of the death of Mr Walton. "He was a nice, warm and competent guy," she said.

Richard Lambert, an MPC member until three months ago, said: "David was a wise and generous chap. We were in adjoining rooms at the Bank and I grew greatly to admire him. He was willing to share his ideas and took me through them in a clear, understandable way.

"He was immensely likeable and friendly as well as being interested in everything going on."

Mr Walton's death leaves the MPC two members short, as the Treasury has yet to appoint a replacement for Mr Lambert, who left to join the CBI.

Analysts said Mr Walton, who was a chairman of the Society of Business Economists, would be missed by his many friends in the City; his death also left a big hole in the MPC.

"He was a guy who was equally at home in the corridors of power as he was in the City," said Peter Dixon, UK economist at Commerzbank. "He clearly was a heavyweight figure whom the markets looked to as someone who was very clued up to what was going on in the economy, and indeed in the market, and he is going to be a very, very difficult figure to replace."

The economic secretary to the Treasury, Ed Balls, was a long-standing friend of Mr Walton. "It is a loss for the City and for British economics. But for many of us it means the loss of a very good, kind and generous friend," he said.