Mr King warned over the impact of soaring energy bills, food prices and dearer imports as the Bank's latest forecasts predicted Consumer Prices Index (CPI) inflation could spike as high as 3.7% this year.

"As those price increases feed through to household bills, they will lead to a squeeze on real take-home pay, which will slow consumer spending and output growth, perhaps sharply," the Governor said.

The Bank added to the gloom by predicting growth could slow to just 1% this year - well below official Government forecasts - as banks hit by the credit crunch tighten up lending and consumers alarmed by falling house prices save more.

Wages are meanwhile unlikely to grow significantly as businesses come under pressure and shed jobs.

But policymakers are unlikely to ride to the rescue of struggling homeowners and borrowers with a swathe of interest cuts because inflation is so high.

The Bank's Monetary Policy Committee (MPC) is charged with keeping inflation at 2%, but CPI is likely to remain above 3% until well into next year - prompting a series of open letters from Mr King to the Chancellor explaining the rise.

The report suggests CPI will remain well above its 2% target in two years' time if rates fall up to twice more this year to 4.5% as markets expect.

Even one more cut this year is by no means certain as the forecasts shows inflation undershooting the target by the narrowest of margins in two years' time if borrowing costs are held at 5%.

Jonathan Loynes, chief European economist at Capital Economics, said: "The report suggests that the MPC will not deliver the rate cuts which the news on the economy suggests are sorely needed. We still think interest rates will eventually fall, but a June cut now looks pretty unlikely and any further loosening will be modest in the foreseeable future - seriously bad news for the economy."