Recession far from over, says Bank of England chief

His comments came as the Bank's quarterly inflation report predicted a pick up in growth, although it added that conditions remain uncertain and that the pace of recovery will be dampened by the need for "substantial fiscal tightening" and a further strengthening of banks' balance sheets.

In reference to recent political developments, Mr King said he had been told of the fiscal plans of the new coalition and that he was pleased there was a binding commitment to accelerating deficit reduction.

The Governor was quizzed over comments he reportedly made in private prior to the election in which he indicated that whoever got into power would be so unpopular due to necessary spending cuts and taxes that they would subsequently be out of power for a generation.

Mr King said people would be best placed to take the reported quotes with "a big pinch of salt".

In his remarks on the inflation report, the Governor said that the UK's two successive quarters of economic growth was "no small achievement".

He added that the pick up is forecast to accelerate in the coming months: "The recovery is likely to gather pace over the next year, underpinned by the considerable stimulus stemming from the highly accommodative monetary stance, together with a projected further expansion of world demand and past depreciation of sterling."

But this pace will be dampened by fiscal consolidation and the need for a more robust banking sector.

As for inflation, the Bank predicts it will remain above the 2% target for the rest of 2010. But it is then expected to fall below this level and remain under 2% for much of the following two years, even if interest rates remain on hold.

Commenting on the impact of the new coalition, Mr King said markets had been waiting for the election to be over and now "need and want a very strong signal" from the new administration.

The Governor added: "The most important thing now is for the new government to deal with the challenges of the fiscal deficit - it is the single most pressing problem facing the UK and it will take a full parliament to deal with it."

But Mr King expressed confidence that the coalition would be able to come up with a clear plan to tackle the issue.

"I have been told what is in the agreement between the Conservatives and Liberal Democrats this morning and I am very pleased that there is a very clear binding commitment to accelerate the reduction in the deficit."