The "nice decade is behind us", said Bank of England governor Mervyn King today, warning that inflation will get worse before it gets better, leaving little scope for an economy-boosting rate cut.

In its quarterly Inflation Report today, the central bank predicted that inflation could nudge four percent and the economy could even contract.

The Monetary Policy Committee is facing its most difficult challenge yet," King told reporters. "We are travelling along a bumpy road as the economy rebalances."

In a marked contrast to the interventionist policies of the US administration, King said that "monetary policy cannot, and should not try to, prevent that adjustment".