The economy faces a "rather uncomfortable" stretch in which growth will slow and inflation will rise, Mervyn King, the Governor of the Bank of England, said today.

Speaking before the Commons Treasury Committee, Mr King said that while turmoil in financial markets would make borrowing more costly and slow consumer spending, energy and food prices were rising sharply, creating a dilemma for the Bank's rate-setting Monetary Policy Committee.

"So the short-term outlook is rather uncomfortable," he said. "The committee’s current judgment is that the most likely outcome is for output growth to slow and inflation to rise, at least for a period ... The outlook is also highly uncertain which makes the task of navigating through the next few months far from straightforward."

He and other members of the MPC gave little indication that they were planning to cut interest rates as soon as next week, at their forthcoming monthly rate-setting meeting.

Mr King said that the MPC faced the challenge that inflation expectations could be pushed up again by a short-term rise in prices, but that inflation would ultimately drop below its target if growth slowed sharply.

Rachel Lomax, the Deputy Governor for Monetary Policy, said that evidence of a sharp slowdown was so far patchy. Charles Bean, the Bank's chief economist, said that the Bank still predicted a relatively soft slowdown in the economy.

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