These are tough times to be Governor of the Bank of England. For weeks Mervyn King has been on the rack over the Northern Rock debacle. Now, to judge by yesterday’s news of rising inflationary pressures, which have awkwardly materialised just as the economy is rapidly losing steam, Mr King finds himself thrust into the central banker’s least favourite position — between a rock and a hard place.

With the housing boom clearly spent, wary consumers in retreat, the credit squeeze turning the screws still tighter on lending conditions and scary scenarios for the global economy looking ever more plausible, the hopes of many are pinned on the Governor delivering the gift of lower interest rates. Most would like to see these soon after Christmas at the latest, and preferably before.

Yet official data showing that the cost of goods leaving Britain’s factories hit a 12-year high last month, when taken alongside a bunch of other nagging inflationary worries, mean that Mr King is likely to dash these hopes when he unveils the Bank’s quarterly Inflation Report tomorrow.

It is not a prospect to fill the Governor with festive cheer. Yesterday’s leap in factory prices comes even before the full impact of the further surge in the cost of crude, to close to $100 a barrel, has had time to filter through. With a swelling global appetite also driving food prices upwards at the fastest pace for 14 years, the trends point to worse inflation news to come.

It remains to be seen whether retailers are, in turn, able to charge their increasingly cautious customers more at the tills in a high street that is growing more competitive. Yet manufacturers’ apparent ability to lift their prices will reinforce the Bank’s anxiety that businesses of all kinds are managing to exert greater pricing power.

The lesson of previous oil shocks is that eventually the squeeze on consumers’ and businesses’ spending power from dearer fuel and energy bills will curb demand and slow the economy sufficiently to quell inflation. Then interest rates can fall back to underpin growth.

But that takes time. The disturbing implication of the heightened dilemma over inflationary dangers that the Governor and his colleagues on the Monetary Policy Committee must now confront is that this impending slowdown is likely to be longer, sharper and more painful than any of us — Mr King included — would like.

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