Mervyn King warns it's too soon to talk about UK recovery

He said that is was too early to give Britain a clean bill of health despite bullish figures last week which showed output had risen by 1.1% during the second quarter.

King also said there may be a "considerable" way to go before interest rates return to "normal" in a sign he believes that plenty more emergency support is needed.

The cautious comments, to MPs on the powerful Treasury Select Committee, came as the City debates whether the UK is on the road to recovery following the deepest recession since the Great Depression.

King said: "Last week, we learned of the strong 1.1% estimate of GDP growth in the second quarter.

"On the face of it, that is encouraging. But we must be careful not to read too much into one number.

"And the wider economic problems around the world underline the fact we cannot be confident that the recovery in demand, output and employment here in the UK will be sustained."

He said the main threat to the UK economy came from overseas rather than from the harsh tax rises and spending cuts announced last month by Chancellor George Osborne.

King said the emergency Budget "made no significant difference" to the outlook for growth in a show of support to the coalition Government.

"The aim of it was to try to deal with some of the downside risks that might have arisen without a plan to reduce the structural deficit," he said.

Critics have argued that the fiscal squeeze will tip the economy back into recession.

However, King said that the biggest threat comes from a collapse in demand in Europe and a slow recovery in the US — Britain's two biggest trading partners.

He warned inflation will stay above the 2% target — it is currently at 3.2% — for "much of next year" because of the VAT rise from 17.5% to 20% in January 2011.

King highlighted the dilemma facing the Bank as it tries to balance the threat of weak economic growth and high levels of inflation.

Andrew Sentance, the uber-hawk on the Bank's monetary policy committee, has twice voted for rates to rise from the current level of 0.5% to control inflation.

But he has been outvoted by King and the rest of the MPC who fear that higher borrowing costs, combined with Government austerity measures, will derail the recovery.

King said: "We judge that at present it is right to keep our foot firmly on the accelerator in order to stimulate the economy.

"Of course, there will come a point when we will certainly need to ease off the accelerator and return Bank Rate to more normal levels.

"I look forward to that time because it will probably be a signal that there is a smoother drive ahead, with the economic outlook improving in a durable way.

"But I fear there is some considerable distance to travel before we can begin to use the word normal."