The coming year "will be a painful and difficult one" with a greater chance of recession this winter, the Bank of England boss has warned.

During a press conference, BoE Governor Mervyn King said interest rates are likely to remain on hold in an attempt to bring inflation down.

Mr King said: "The next year will be a difficult one with inflation high and output broadly flat. But with monetary policy focused on its task of bringing inflation back to the target, it will come down and we will come through the adjustment."

He added: "And we will return if not to the 'nice' decade then at least to one that, as central bankers say, is not so bad."

Mr King said the UK faced the possibility of recession - defined as two successive quarters of negative growth. With economic growth forecast to be broadly flat, he said it is "bound to be the case that there's a quarter or two of negative growth".

Soaring food and energy prices pushed up CPI inflation to 4.4 per cent in July, but it could top 5 per cent in the months ahead if more gas and electricity suppliers follow EDF and British Gas's recent hefty price hikes, the Bank warned.

The BoE, in its latest quarterly inflation report, said with no rate cuts in the next two years, inflation is likely peak at just below 5 per cent in coming months before falling sharply in 2009 and dipping below the official 2 per cent target in two years time.

The report said there are "serious upside risks" to inflation in the coming months. This is despite a recent slide in oil prices to about 25 per cent of their near $150 peak last month.

The report said: "In the short term the profile for inflation will depend particularly on the size and timing of further retail gas and electricity prices."

The Bank added that inflation would fall back sharply to a little below the medium-term target of 2 per cent, as the contributions of food and energy prices waned.

In May, the report predicted inflation would remain above target into late 2010.

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