Mervyn King has referred to the UK economy as 'bumping along the bottom' whilst commenting on the Bank of England's (BoE) quarterly inflation report.
However, the governor of the bank admitted that a gradual recovery in output may now follow.
Uncertainty is still present regarding the likelihood of a rise in demand in the global economy despite signs that economies around the world are recovering.
Mr King said: "At home, the tailwinds of an enormous policy stimulus and the depreciation of sterling are meeting the headwinds created by the balance sheet adjustment of the damaged banking system."
A near-term inflation spike of around 3.5 per cent has been forecast by the BoE, even if interest rates stay at the current low of 0.5 per cent.
Last month Mr King showed his support for a radical banking reform. He also warned that any changes should not be rushed as this could damage the wider economy.
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