Bank's inflation hope threatened by debt-crisis fears on the Continent

Inflation in Britain rose to a 17-month high of 3.7 per cent in April, almost double the central bank's 2 per cent target, and has been surprisingly sticky in recent months.

"It is a long way above our target level now but we have to take a long-term view," Mr Miles said.

"The effect of changes to interest rates takes six to 12 months to come through. We believe inflation will have also dropped by then."

Mr Miles said predicting how the economy would fare in the coming months was difficult because of the uncertainty caused by the Eurozone's sovereign debt crisis.

"The Eurozone problems in particular pose a risk to the fragile recovery of the UK economy," he said. "Europe is our biggest export market and we factor that risk into our judgments."

Mr Miles defended the bank's strategy of quantitative easing, saying it had reduced the cost of borrowing money for large companies.

He said he expected the bank's powers to be enhanced by the new coalition government's decision to give the central bank greater regulatory oversight.

"It should mean we have a wider range of instruments to help us control the economy and avoid problems in the future," he said.