Speaking at the annual Mansion House dinner, Mervyn King made it clear that inflation was set to rise, while growth and house prices were likely to fall.
Mr King also warned that real take-home pay would stagnate, making life difficult for some families.
On Tuesday the Office for National Statistics said that the Consumer Prices Index (CPI) was 3.3% in May, up from 3% in April, the biggest increase since the measure was introduced in 1997.
The wider Retail Prices Index (RPI) which is used for uprating pension and benefits and for wage bargaining rose to 4.3% from 4.2% the previous month.
Teresa Perchard, Citizens Advice
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Defaqto argues savers are benefiting from the credit crunch
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Savings rates
With inflation running at record levels, is it possible to ensure that the value of your savings is not eroded? What type of products might be suitable?
David Black, principal banking consultant at Defaqto joined Money Box to discuss the options.
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One listener was charged £330 for damage done to his hire car
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Car hire charges
Whenever you hire a car, you are normally asked to give your credit or debit card details as a security.
If the car suffers damage which is not covered by insurance, the hire company can recover the cost of repairs.
But what are your rights if a firm debits your account for damage you didn't think was there, when you returned the vehicle?
Bob Howard investigated.
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James Plaskitt is responsible for modernising benefit payments
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The end of the Giro cheque
The government is writing to 150,000 pensioners who receive their payments by cheque to warn them such arrangements will be phased out by 2010.
It wants to replace cheques with payments directly into a bank account.
But pensioners' groups are worried about the impact on those pensioners who cannot or do not wish to use a bank account or post office card account.
We heard concerns from Dot Gibson, vice president of the National Pensioners Convention and put them to the DWP minister responsible James Plaskitt MP.
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Lloyds is using a specialist tracing agency to track down customers
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Dormant accounts
Lloyds has become the latest bank to launch a drive to get customers to reclaim money left in dormant accounts.
Lloyds has identified £69m in some 120,000 personal and business accounts that have not been touched for at least 15 years.
In a similar move, Halifax last year returned £14m to more than 7,000 customers.
The banking industry been taking steps to refund money to customers, ahead of the introduction of a government scheme to reinvest unclaimed assets for community projects.
Catherine McGrath, director of transaction banking, Lloyds told us more.
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BBC Radio 4's Money Box was broadcast on Saturday, 21 June 2008 at 1204 BST.
The programme was repeated on Sunday, 22 June 2008 at 2102 BST.
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Weathering the storm
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