Mervyn King appeared to be heading for a second term as Governor of the Bank of England last night after ministers turned a blind eye to recent criticism of their handling of the credit crisis attributed to Bank officials.

Well-informed sources in No 10 and the Treasury told The Times last night that it was a “reasonable assumption” that within the next few weeks Mr King would be reappointed for another five years from next June.

Gordon Brown and Alistair Darling, the Chancellor, apparently have agreed that a move to change Governor in mid-stream would damage the stability that they claim is at the heart of their economic policy.

Although they are privately irritated by what they see as indiscreet criticism from the Bank, they believe that a stable relationship between the Bank and the Treasury is vital in the coming months as the Northern Rock affair reaches some kind of conclusion.

It is understood that there have been regular conversations between Mr Darling and Mr King over the past few days in advance of yesterday’s surprise announcement by the Treasury that it is extending, potentially by many billions, its guarantees to Northern Rock.

The move is designed to give the failed lender further breathing space as attempts continue to assemble a successful bid that would allow a private-sector rescue.

That is seen by Mr Darling and Mr Brown as far preferable to temporary nationalisation.

The Prime Minister emphasised yesterday that the Government was still keen to see a private sale of Northern Rock.

“While we’ve never ruled out any option whatsoever, of course our preference has been all along for a private buyer,” he said.

Mr King’s position has appeared shaky for months after he was criticised privately by ministers and officials in the immediate aftermath of the run on Northern Rock over his handling of the affair, and the Bank’s approach to tackling strains in money markets.

Tensions were inflamed after Mr King defended his role in a BBC interview, in a move seen in the Government as “naive” and damaging.

The Times disclosed yesterday that Mr King had told friends that he hoped to be reappointed and believed that if he was not it would be an unfair blot on the Bank’s recent record.

The Governor himself sought to ease tensions yesterday, denying to the Commons Treasury Committee reports suggesting that the Bank felt that the Chancellor and Prime Minister had been distracted and unable to focus on dealing with the issues surrounding Northern Rock “because morale throughout the Government was so low”.

Mr King insisted categorically to MPs that neither he, nor other Bank officials, held such opinions.

A senior Treasury source emphasised that, “as far as Alistair is concerned he and Mervyn have good relations and there has been none of this disagreement that recent reports have suggested”.

Mr King yesterday sidestepped questions about serving a second term, saying only, “that is something we will return to after Christmas”.

But he and his embattled deputy, Sir John Gieve, defended their actions over Northern Rock, while admitting to some shortcomings in the Bank’s communications strategy with the markets and the public.

Sir John insisted he would not resign, saying: “There is still an important job to do, and I’ve been appointed for five years.”

After the British Bankers’ Association again claimed that the Bank had not done enough to ease money market stresses before Northern Rock’s near-collapse, Mr King again defended its strategy.

He renewed his calls for reforms to prevent a repeat of the Northern Rock affair, including a new law making special arrangements for preemptively rescuing banks in distress and new insurance arrangements to give banks’ depositors guarantees that their money would be protected.

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