King warns of 'long healing period'
Updated on 19 January 2010
The patience of households will be "sorely tried" in the years ahead as the UK claws back from recession, Bank of England governor Mervyn King warned on Tuesday.
The country is likely to face rising inflation in the first half of the year, as well as possible tax hikes amid efforts to restore the public finances, he said.
But he also warned: "There is little scope for growth in real take-home pay, which may remain weak even as output recovers."
The warning over the temporary inflation spike comes on the day official figures showed the cost of living rising at a record rate to hit 2.9% in December.
Mr King said there was a "perfectly sensible debate" over when emergency help for the economy should end, but warned markets could be "unforgiving" amid continuing uncertainty over tackling the public finances.
He cited US Federal Reserve chairman Ben Bernanke's recent comments that "unless we demonstrate a strong commitment to fiscal sustainability in the longer term, we will have neither financial stability nor healthy economic growth".
Mr King added: "The Chancellor has made clear that the Spring Budget provides the opportunity to do precisely that."
The Bank of England has yet to decide whether to expand its £200 billion quantitative easing programme to boost the money supply, with policymakers "waiting for race conditions to become clearer", the governor said.
But Mr King also said that the full impact of the financial crisis "has yet to be seen" and expressed some frustration with the pace of reform following the catastrophe of 2008.
He added: "The question of whether basic reforms to the structure of banking and the international monetary system will be made before another crisis engulfs the world economy remains unanswered."
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