Bank of England may start pumping in money again

He said the monetary policy committee was ready to pump even more money into the economy if the recovery falters and inflation falls back below the 2% target.

The comments, at the Bank's latest inflation report, followed last week's decision to halt the unprecedented programme of quantitative easing which has seen £200 billion injected into the ailing economy through buying assets such as gilts and bonds.

King said: "Although the MPC last week announced a pause in its programme of asset purchases, it is far too soon to conclude that no more purchases will be needed. So the committee will keep its options open, and further purchases will be made if they prove necessary to keep inflation on track to meet the target in the medium term."

It came as the Governor warned the UK could plunge back into recession this year after recovering from the longest slump since the Second World War.

The Bank downgraded its economic forecasts and raised its inflation outlook for the year after seeing growth of just 0.1% in the fourth quarter of 2009 and inflation hit 2.9% in December.

It forecast gross domestic product to grow by around 3% by the end of this year, far lower than the 4% forecast at the last report in November.

The Bank said inflation will spike at around 3.5% early this year before falling back below the 2% target.

Jonathan Loynes of Capital Economics said: "The report looks distinctly dovish and will raise questions over why the MPC did not extend quantitative easing further last week.

"Not only has the outlook for GDP growth been revised down, but inflation is expected to be below its 2% target for most of the forecast period.

"The clear message is that further policy support may yet be needed, whether that is more QE or other forms of support. Either way, any tightening of monetary policy is a long way off."

King said the UK's cherished AAA credit rating was safe despite its debts and insisted Britain was not in the same position as crisis-hit Greece.

He said: "I cannot think of any reason why the UK should lose it. It would be most peculiar if this should happen. The UK has a very good track record. There is a wide political consensus on the need to reduce the deficit."

With borrowing set to hit £178 billion this year, a record 12.6% of GDP, Labour and the Conservatives have pledged to slash government debts.

King said: "I don't think you can compare the UK with Greece. There are big differences. We have our own currency. There is clear political agreement to take action here. The maturity of UK debt is much longer."