In a speech to a conference in Macau, a text of which was made available in London, George said: "When the exchange rate weakens -- as we anticipate it will in due course -- then monetary policy will at some point need to offset that influence in the opposite direction".

It was unlikely, however, that George was thinking rates would have to rise anytime soon. This week the BoE's quarterly inflation report said if the pound did not fall soon, it would consider cutting rates again.

George pointed out that the BoE's Monetary Policy Committee -- which meets monthly to set British interest rates -- had cut rates sharply in recent months due partly to the depressing effect on aggregate demand of the pound's strength over the last two years.

"We have had to manage as best we can a severe imbalance between different sectors of theeconomy, with the internationally exposed sectors taking a considerable hammering," he said.

George said there was, from Britain's own experience, no "ideal solution" to the question of which exchange rate regime was best for a country. With Europe's single currency, the euro, there were considerable economic advantages but the "potential downside" was the risk the single European monetary policy would not meet the domestic monetary policy needs in all the individual participant countries.

"The jury is still out on this question," he said.

When tension did arise between external and domestic objectives, a country could not avoid the impact on domestic policy altogether even with a floating rate regime, he said.

He said it may help to reduce that tension by attempting to manage that float through exchange market intervention.

"Though I agree that such intervention may serve as little more than a signal where a currency is internationally widely traded and held," he said, echoing comments by deputygovernor Mervyn King on Wednesday who said intervention was a "pretty marginal weapon".y