Bank Chief Releases Gloomy Forecast

The overall economic prospects for the UK have "deteriorated" recently, Bank of England governor Mervyn King has said.

According to the central bank chief, house prices are to fall further dragging the economy close to recession, the BBC reports.

"The central projection is for growth to slow sharply in the near term," he said, adding that national growth was only likely to rebound in 2009.

Mr King's comments come with the release of the new government-preferred inflation benchmark which showed a sharp 0.5 per cent rise for the month.

The figure has been driven up by rising commodity and food prices, leaving many people with less spending money.

Inflation now stands at around three per cent - far above the government's target of two per cent.

Commenting, Mr King also said that the government target would not be met for another two years.

"For the time being at least, the nice decade is behind us," he added.

In turn, this is likely to mean that the bank will be less likely to administer interest rate cuts in the future - as these tend to have an inflationary effect.

Commenting on Mr King's forecast, the BBC's business editor Robert Peston said that the state of the economy has put the Bank of England in "a tricky position, to put it mildly".