Carney will continue to serve as governor of the Bank of Canada until June, and will take up his new job on July 1.
Carney said he and Flaherty had enjoyed an effective partnership and added he will miss the camaraderie and clear sense of purpose he experienced with the Finance Minister. He praised the strength of the central bank and reiterated his confidence in it.
A smiling Flaherty said this moment is "bittersweet," and that the loss of Carney will be felt in Canada.
Carney's rumoured appointment to the Bank of England was the source of published reports last spring, and at the time he and the Bank of Canada denied the reports.
"I'm totally focused on my two responsibilities: as governor of the Bank of Canada, and the Financial Stability Board," Carney told reporters on April 18. "I can assure you they add up to more than every waking hour of the day."
Carney flatly denied the rumours again in August in an interview with the BBC.
On Monday, Carney said he had turned down job offers with the Bank of England twice, but discussions about the job intensified in the past two weeks. He said he was able to assess the unity and cohesiveness of the financial system at home before he felt confident he could accept the new position.
Evan Solomon, host of CBC News Network's Power & Politics, reports that Carney insisted on a five-year term rather than the traditional eight-year-term because he intends to return to Canada, and because he thinks that's the right amount of time to complete the reforms needed in England.
On the other side of the Atlantic, the London-based Financial Times said Carney had showed "Jesuitical talent" in downplaying rumours months ago about potential appointment and that he would now assume the role of shaking up the bank's stuffy culture.
An editorial in the Telegraph said Carney's appointment sends a message to the rest of the work that the U.K. wants "the very best in the world to run its central bank" and that he was "untainted" by prior policy mistakes.
The majority of Canadians sounding off on Twitter expressed disappointment over losing their country's top banker.
But Carney said this is a crucial time in Europe for global financial reform and that London is the centre of that system.
Flaherty said he can understand the challenge the Bank of England offers Carney.
A few months ago, it was also heavily rumoured Carney might leave the central bank to seek the Liberal leadership, an idea Carney laughed off at Monday's press conference.
It is highly unusual for a bank governor to leave in the middle of a term, and clearly Flaherty did not want to express any anxiety that might affect the markets.
CIBC World Markets immediately issued a statement reassuring its customers: "It's unclear that any likely replacement would have a markedly different take on monetary policy in the near term, as Canada will still need faster growth than we've seen to justify higher rates." The release described Carney as "hawkish in action but dovish in words."
Carney said he has many ties with the U.K., pointing out he spent a decade there and his wife is a dual British-Canadian citizen.
It's important that the U.K. economy do well, he said, and its success is important for Canada. The "challenges are greatest there," he said.
The 47-year-old Carney was born in the Northwest Territories, obtained his master's degree and doctorate in economics from Oxford University and worked for Goldman Sachs out of its London office for a while. He spent several years at the Department of Finance as a senior associate deputy minister, working under both Flaherty and former Liberal finance minister Ralph Goodale.
Carney will keep his position as chairman of the Financial Stability Board, an international body that promotes the implementation of effective regulatory, supervisory and other financial sector policies in the interest of financial stability.
NDP MP Guy Caron, reacting for the Official Opposition, was complimentary of Carney, saying his replacement at the Bank of Canada will have big shoes to fill.
Britain's Chancellor of the Exchequer George Osborne formally announced Carney's appointment. "[Carney] is quite simply the best, most experienced and most qualified person in the world to do the job. He has done a brilliant job for the Canadian economy," he said.
Osborne added that Carney has agreed on a five-year term and that he intends to seek British citizenship.