At a press conference following the publication of BOE's May Inflation Report, King warned against the dangers of talking the economy into a recession. "I maintain what I said in February, that economic sentiment and mood outside London is very different and not all that gloomy," he said.

"We face an economic crisis, but it is nowhere near as bad as the 1930s depression, as sectors outside of finance and property, (considered the mainstay of the London economy), are doing better," King added.

He admitted the country may see an "odd quarter or two" of negative growth, which may lead some forecasters to say that it has slipped into a technical recession for the first time since the early 1990s.

On inflation, the governor believes that he is likely to have "plenty of opportunities to write letters" to Chancellor of the Exchequer Alistair Darling to explain why inflation is running so far above the 2.0% target, as short term BOE projections suggest the figure will be above 3% for most of 2008.

He stressed the Monetary Policy Committee (MPC) faces its most difficult challenge yet over the coming months, adding that inflation will return to target and UK growth will pick up, but that "patience will be required."

Despite fears expressed in the May Inflation Report that the figure could rise to nearly 4%, King brushed aside any suggestions of either changing the inflation target or the MPC's remit in managing it. "This is not the moment to change the inflation target. Changing the inflation target would not make the MPC's job any easier," he said.

King also discounted suggestions that the government's £2.7 billion tax relief play, revealed on Tuesday, constituted a stimulus of some sort, describing it as "relatively modest" in terms of its impact on the economy and inflation.

Elsewhere over the press conference, King said the £50 billion special liquidity scheme announced by the BOE in April has been successful so far in stabilizing banking and financial sector confidence. However, he added that challenges persist as markets remain fragile.

King described the UK's ongoing economic slowdown as an "adjustment which was needed". He added that the MPC cannot and should not try to prevent this ongoing adjustment.

Speaking alongside the Governor, MPC member and executive director of financial markets Paul Tucker said economic forecasting under the present circumstances had become very tricky. However, he said conditions had improved compared to where the market was two months ago.

"Furthermore, some risk appetite is returning, notably in the acquisition of assets," Tucker added.

Fellow MPC member Charles Bean said inflation expectations were driven in most markets by rising energy and food prices, especially that of oil. He said the Organization of Petroleum Exporting Countries (OPEC) did not do its bit to ease supply concerns, but stopped short on pegging the blame on the cartel for high oil prices.

"OPEC did not ease oil supply concerns to the extent which it could have. However, various other factors also come into play with respect to rising oil prices, the impact of which is being felt well down the supply chain. Energy prices are hitting everything else," Bean said.

By Gaurav Sharma, This email address is being protected from spam bots, you need Javascript enabled to view it , edited by Cristina Markham, This email address is being protected from spam bots, you need Javascript enabled to view it