UK's Darling to stay, sterling trims losses

By Sumeet Desai

LONDON (Reuters) - British finance minister Alistair Darling will stay on in his job, a government source told Reuters on Friday, ending a week of feverish speculation that he would be moved in favor of schools minister Ed Balls.

While sterling continued to take a battering on growing political uncertainty in Britain, Darling is generally well-regarded by financial markets and analysts welcomed his survival in the middle of a severe recession.

"We welcome the news that Alistair Darling is staying on at Number 11. In uncertain times, it provides a degree of continuity in policymaking," said Philip Shaw, chief economist at Investec.

"Darling at the Treasury has done a good job in tackling the financial crisis since last September."

The pound recovered some ground, helped by the report, but was still down around 0.7 percent against the dollar on Friday.

Brown had been considering putting his right-hand man Ed Balls, the schools minister, into the Treasury and a source close to Darling said things were still up in the air early on Friday morning.

But Darling, also a long-time Brown ally who has been Chancellor of the Exchequer for the last two years, had made it known he did not want to be moved.

With four cabinet ministers resigning this week, Brown may have calculated losing Darling would be too risky for his own position, which is under threat as people in his own Labour Party call on him to go.

And while few doubted that Balls, a former Treasury advisor and minister, had the economic credentials for the job, he remains a divisive figure within the Labour Party and his appointment could have added pressure on Brown to step down.

EXPENSES ROW

Sterling has lost around five cents to the dollar this week as markets price in the increased risk of a vacuum in political leadership.

Darling, 55, has had a rough ride since he took on the finance portfolio in the summer of 2007. Within months, Britain suffered its first bank run in a century.

The escalating global financial crisis then precipitated a huge bailout of Britain's banking sector in 2008, sending public debt soaring, and the economy has fallen into recession for the first time since the early 1990s.

Most analysts say that given the circumstances Darling has done a good job since he took over from Brown at the Treasury and many Treasury officials expressed relief that he would be staying as they had feared a more autocratic regime under Balls.

"It's not really the time to be changing the Chancellor. Obviously, Darling has had his problems, but he has had to face very difficult circumstances," said Howard Archer, economist at Global Insight.