Economy faces bumpier time - King

Mr King told business leaders in Scotland that recent fluctuations in stock markets reflected an economic outlook which was "far from certain".

Inflation was "volatile", with higher crude oil and gas prices beginning to have an impact on household spending.

But he stressed inflation was on target and was not yet "a serious concern".

Rates move

Fears about rising prices in the US have led to significant volatility on major stock markets in the past six weeks.

Some economists believe the Bank of England's Monetary Policy Committee could be persuaded to raise interest rates later this year, having kept them fixed at 4.5% for the past ten months.

"The way ahead may not be smooth"
Mervyn King, Bank of England Governor

Mr King acknowledged that the economic climate had become more uncertain in recent months.

"After a period of robust economic growth, we approach a somewhat bumpier stretch of the road," Mr King said.

"A rebalancing of global demand is desirable but the way ahead may not be smooth," he added.

Nevertheless, he said UK inflation was close to the government's 2% target and that wage pressures remained muted.

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