Central bank governors from around the world met in the Swiss city of Basel yesterday to discuss ways to support a stuttering global economic recovery and avoid deflation.

Gathering for an annual meeting of the Bank for International Settlements (BIS), policy-makers predicted a "gradual sluggish pick-up across the world moving into next year", according to Bank of England governor Sir Edward George.

Sir Edward, who today steps down as governor, has been chairman of the G10 group for the past four years. Aspirant European Central Bank (ECB) president Mr Jean Claude Trichet strengthened his hand when he was elected by the group to succeed him.

Only last week Mr Trichet secured his route to the presidency of the ECB after a Paris judge cleared him of charges of complicity in financial fraud in the Crédit Lyonnais banking scandal. He is expected to assume the ECB presidency later this year after confirmation by European Union politicians.

Central bankers face the daunting challenge of setting monetary policy in an environment marked by concerns about deflation, a weak dollar and stubbornly weak output.

Deflation - the new threat on the block to policymakers outside Asia - will certainly be a hot topic in both official discussions and private chats between the scores of central bankers at the meeting.

"The issue is really how to produce growth in the economy and cope with the excessive disinflationary patterns which have appeared in many countries," said one central bank official, heading into yesterday's meeting. Among those attending the three-day gathering are the US Federal Reserve chairman Mr Alan Greenspan, ECB president Mr Wim Duisenberg and Bank of Japan governor Mr Toshihiko Fukui. - (Reuters)