LONDON, June 24 - Bank of England Governor Sir Edward George said on Tuesday that the recent fall in the sterling exchange range was helping to offset the impact on Britain of the weakness in the world economy. In testimony to parliament's Treasury Select Committee, George also said the rise in world stock markets in recent months was "very positive" for the world economy even if the global recovery had come later than initially predicted. George, who retires in a few days after 10 years at the helm, said the international economy had suffered two unexpected shocks in the last year -- corporate governance scandals in the United States and the war in Iraq.
He said that Britain could not help being affected by these events but added: "We have a bit of a cushion from the weakness of the exchange rate." The pound slipped after the governor's remarks, falling through support at $1.6680 . Though it has recovered somewhat in recent weeks, the pound has fallen sharply in trade-weighted terms this year and is still down more than six percent against the euro since the end of 2002. George said this fall has raised the upside risks to inflation at the end of the BoE's two-year forecast horizon. He said he could not explain why the the pound had fallen so much in recent months but noted that it had recovered somewhat since the Monetary Policy Committee's last meeting in June.
Still, the decline should help move Britain to better balanced growth and also be less of an impediment to membership of the single currency if the country were to decide to join, George said. "I said very explicitly the strength of sterling's exchange rate against the euro was an immediate obstacle. Since that time the euro has recovered and sterling has declined..it has moved in the right direction." Asked about a Treasury-commissioned study by Professor Simon Wren-Lewis which came up with a equilibrium entry rate of 1.37 euros to the pound, George said it was impossible to put a precise number on something like that and that asking different people could come up with different results. The pound was trading on Tuesday at around 69.4 pence to the euro, or 1.44 euros to the pound.//