LONDON, Aug 30: Bank of England Governor Sir Edward George on Thursday moved to calm volatile financial markets by predicting a gradual recovery for the global economy from its recent woes.

Mr George, speaking to the Pakistani Bankers’ Association annual dinner, also dismissed suggestions that other economies faced the deflationary problems besetting the Japanese economy.

“The world has suffered a sharp setback in the past year or two and we are now seeing a gradual recovery which I expect to persist,” he said.

Asked whether Britain or the US could suffer a deflationary spiral, he said: “The situation in the US is very different to that in Japan. In Britain we have much more room on monetary policy if we saw things heading in that direction. I don’t lose much sleep about deflation at this stage.”

Mr George also said it would be a “thoroughly good thing” for Britain if the euro were to strengthen against the pound.

“I have absolutely not understood why the euro has been as weak as it has against the dollar as well as the pound since its introduction,” he said, adding he had been expecting it to strengthen for a long time.

The euro rose to above 65.2 pence in June — a two and a half year high — but has since dropped back to around 63.67 pence.

When asked whether Britain risked problems if it gave up control of its own interest rates and joined the euro, Mr George acknowledged, as he has in the past, that a “one-size-fits-all” monetary policy could create more tensions at the euro zone level than at the national level when economic shocks occurred.

“If there were really serious tensions they could be more serious than at the national level,” he said — a remark which may be seized on by anti-euro groups in Britain as proof that George thinks Britain should not join the euro.

Britain’s Labour government favours joining the euro subject to a number of economic tests and a referendum.—Reuters