Bank governor plays down hopes of sudden rate rise

The report also revealed a downgrade to this year’s growth forecast, although the Bank said the UK should avoid a double-dip recession.

Following publication of the report, Mr King said while it was “clear” rates will have to rise from their current historic low of 0.5 per cent at some stage, the path of monetary policy was not a foregone conclusion.

Yesterday he said: “Some people are running ahead of themselves and saying that we are pre-announcing or laying the ground for a rate rise.

“That decision has not been taken and won’t be taken until we get to the next meeting, or the following meeting – it may be many quarters before we do anything.”

The Bank reassured in its report that economic growth was set to resume following the shock 0.5 per cent contraction at the end of 2010.

But its report predicted UK growth just below 2 per cent on an annual rate for much of 2011 – weaker than the 2.5 per cent assumed in its November forecast.

This would rise in late 2011 and pick up to about 3 per cent in 2012 and 2013 as the recovery takes hold, the Bank added.

Yesterday’s report confirmed inflation is expected to soar close to five per cent before falling to around the two per cent target in 2012.

However, this was based on interest rates rising in line with market expectations, starting as early as the second quarter.

The market expects rates to reach one per cent by the end of the year and the report warned that if the Bank took no action, inflation would still be above target in two years’ time.

Mr King said: “It is clear that at some point Bank rate will have to go up.

“Anyone making long-term financial decisions should not expect the Bank rate to be at these low levels indefinitely.”

He also said the Bank would lift its base rate before unwinding its £200bn quantitative easing programme, which was launched to boost the money supply and aid recovery.

However, he stressed the path of growth, private spending, export and investments would all have a bearing on inflation and therefore interest rates over the next two years.