Unwinding global economic imbalances without too much pain will need some fall in the currencies of countries with big trade deficits, Bank of England Deputy Governor John Gieve said yesterday.

"If the slowdown is not to dominate, we need to see a shift in relative prices to relative demand - that is a gradual real exchange rate depreciation of deficit countries against surplus ones," he said, according to the text of his speech.

His comments suggest the BoE would be happy to see a gradual weakening in the pound against countries running big trade surpluses as Britain suffers from a large current account deficit.

Mr Gieve, whose remit is financial stability, signalled little concern about the dollar's slide to a record low against the euro this week which has worried some policymakers in Europe and Japan.

"There are signs that in the United States, at least, imbalances are beginning to adjust," he told a financial audience in London. "The US current account deficit now looks past its peak and the marked fall in the dollar - about 25 per cent in real trade-weighted terms - since its peak in early 2002 should help in the adjustment."

But he noted there was a risk that the fall in the US current account gap would not be matched by a fall in the big surpluses of countries in Asia, but would instead cause even larger trade gaps in nations already suffering from big deficits. "The imbalances could be transferred, not reduced," he said.

Mr Gieve said it was therefore important that the large gap between savings and investment in east Asian and oil exporting countries narrowed, although rising inflationary pressures there would limit increased spending in the near term.

"More exchange rate flexibility should be helpful on both fronts," said Mr Gieve, noting that it was encouraging that China was allowing more flexibility than in the past in its yuan exchange rate.