Bank of England policymakers calmed market expectations of early interest rate rises, saying yesterday that they wanted to avoid a marked economic slowdown which might pull the inflation rate below target.

The economic picture was encouraging in the medium term, they said, although inflation was expected to rise above four per cent this year and they were concerned about expectations of price rises becoming entrenched.

"The economic slowdown will need to be sufficient to ensure that inflation does not persist above the target. But at the same time, we need to avoid a slowdown that is so pronounced that it would pull inflation down, not just to the target, but below," Bank Governor Mervyn King said.

Five members of the Bank's Monetary Policy Committee (MPC) were giving testimony to a parliamentary committee.

The sterling pared gains and interest rate futures rose during the testimony as analysts interpreted the comments as suggesting the central bank may not raise rates as early as markets expect.

After the rise in annual inflation to 3.3 per cent in May - well above the central bank's two per cent target - financial markets had been pricing in a good chance of a rate increase in August and possibly more before the end of this year.

"The MPC is not conveying that it is in a hurry to tighten policy," said Philip Shaw, chief economist at Investec. "The testimony sounds relatively neutral but given what's priced into the yield curve in terms of higher interest rates markets are starting to have their doubts."

At the same time as rising inflation, economic growth slowed to 0.4 per cent in the first quarter from three months earlier, its weakest rate for three years.

Monetary policy hawk Timothy Besley said convincing wage and price setters that increases in inflation were expected to be temporary may mitigate the need for "more activist monetary policy in the future".

"I am open-minded about the path of bank rate that will be needed to maintain the inflation target in the medium term," he said in a statement issued at the start of the committee hearing.