Britain faces the “unappealing” mix of a weak recovery and high inflation, the Bank of England’s chief warned yesterday, adding that the bank could still restart its bond buying programme to stimulate the economy.

Governor Mervyn King also batted back criticism of the decision to transfer back to the Government the interest paid by the Government on the bonds the BoE bought as part of its stimulus programme.

But it was the economy that was King’s main thrust as he presented the Central Bank’s latest inflation and growth forecasts.

“We face the rather unappealing combination of a subdued recovery with inflation remaining above target for a while,” King said.

Britain just emerged from recession with growth of one per cent in the third quarter, but King warned that this was driven by one-off factors and the economy may well shrink again in the final quarter of the year.