King: 'Households in for rough ride'

Households will struggle as wages fail to keep up with soaring costs of food, petrol and energy bills, the Bank of England boss has warned.

BoE Governor Mervyn King said: "As a nation, our standard of living is going to rise much less quickly than if these price rises had not increased."

But he stressed the Bank's Monetary Policy Committee is focused on the risk of heightened inflation expectations feeding into wage demands, adding: "We can't afford to go back to the 1970s or early 1980s."

Mr King said although the economy may struggle, it is not on the verge of a slump. And he said despite the global credit crunch putting the squeeze on the housing market, consumer spending has so far been "surprisingly resilient".

He said: "This is not an economy which has completely ground to a halt. What is so marked is the difference in sentiment between the people running their businesses and the financial sector - the difference between the real economy and the financial sector."

However, Mr King said consequences will be "more serious" if financial market fragility persists, although he predicted stable house prices as the boom of recent years recedes.

He said: "I would be surprised in a few years if house prices are markedly higher than they are now. House prices should be more in line with average earnings."

The BoE boss's outlook compares dramatically with the state of the US economy after data this week showed a fall of more than 11 per cent in average house prices in the year to January.

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