Nov. 20 (Bloomberg) -- Former Bank of England Deputy Governor John Gieve said the U.K. economy may have passed a “turning point” as the pound’s slide helps it recover from the longest recession on record.

“The level of the pound is going to help the U.K. to benefit from a resurgence in world manufacturing,” Gieve said in an interview at a conference organized by the World Economic Forum in Dubai today. “It was a very important element in the U.K.’s recovery in the 1930s, and I think it will be important in the next few years.”

The pound has dropped 21 percent against a basket of currencies over the past two years, boosting prospects for a rebalancing of the British economy in favor of exports, as called for by Bank of England Governor Mervyn King. The central bank has sought to stimulate growth by cutting its interest rate to a record low and by printing money through its bond-purchase plan, currently totaling 200 billion pounds ($330.5 billion).

Recent reports indicate the central bank’s policies may be starting to bear fruit. A U.K. index of manufacturing orders rose to the highest this year in November and a gauge of services last month was the strongest since the credit crisis started in 2007.

“The issue in the British economy is when is the turning point? Probably it’s already passed,” said Gieve, who left the central bank this year. “Once the recovery is properly established then what is the pace at which you withdraw the policy stimulus? That will be an issue for the next year.”

Bank of England policy makers split three ways in a Nov. 5 vote on whether to extend its bond program and discussed lowering the deposit rate on bank reserves to encourage lending.

Budget Deficit

The pound has dropped as the country’s budget deficit swells. The U.K. government expects the deficit to rise to 12.4 percent of gross domestic product in the year to March, the highest since World War II.

Richard Lambert, director general of the Confederation of British Industry, today called for “ambitious” reductions in the shortfall to keep interest rates low and said lower borrowing costs “would have an impact on sterling.”

The Organization for Economic Cooperation and Development said yesterday the Bank of England should keep its benchmark rate at a record low of 0.5 percent until 2011.

The pound fell 0.9 percent to $1.6513 as of 9:46 a.m. in London. It weakened 0.6 percent to 90.05 pence per euro.

Gieve also said that while there’s little evidence that record-low rates and economic stimulus packages in the U.S. and Europe are creating asset price bubbles, they may be fueling such conditions in eastern Asia and Brazil.

To contact the reporters on this story: Camilla Hall in Dubai at chall24@bloomberg.net; Scott Hamilton in London at shamilton8@bloomberg.net.

Last Updated: November 20, 2009 07:13 EST