THE first signs of tension between Mr Eddie George, the Bank of England governor, and Mr Gordon Brown, the British Chancellor of the Exchequer, emerged yesterday, when Mr George disclosed he had considered quitting over proposals to slim down the Bank.

Mr George's remarks prompted senior members of the government to say that he may not be reappointed as governor for a second five year term next year.

Mr Gavyn Davies, chief economist at US investment bank Goldman Sachs, is now a front runner to succeed him.

The governor's implicit criticism of Mr Brown had "played into our hands", said a senior member of the government who wants him replaced.

Mr George's departure would complete the biggest shakeup in the bank's three hundred year history, following the government's decision to transfer control of interest rates to it but strip it of its bank supervisory role.

The governor said yesterday that he had considered resigning when learning on Monday that the bank's role as supervisor of commercial banks was to be transferred to a new City super regulator. "All sorts of things go through your mind," he said, adding that the thought of resigning went away "very quickly".

Speaking last night on Channel 4 news, he added that he had "thought about the impact that it was going to have on the staff of the bank". "It was a surprise to me; it was going to be a bombshell to them," he said.

Although Mr Brown has not made a formal decision against renewing Mr George's five year contract next year, a minister said the appointment of Mr Davies was "a high probability".

The Chancellor also has to find candidates for two deputy governor posts, one to replace Mr Howard Davies, who is to head the expanded Securities and Investments Board, and a second which is to be created by new legislation. Four vacancies on the bank's new monetary policy committee also must be filled.

Mr Davies, a Goldman partner who is one of Labour's wealthiest supporters, has been tipped for one of the deputy governorships. However, he has made clear to Mr Brown that he is prepared to serve as deputy only if he receives a commitment he would replace Mr George soon after.

Mr George disclosed that he still believes the bank should have a role in supervision, although he admitted that the government's plan had its merits.

Mr George said the lines between banks, securities firms and insurance companies were becoming more blurred; at some point they might become so similar that it made sense to put them all under the same regulator.