BANK of England governor Mervyn King said yesterday that the eurozone is facing a prolonged period of "sluggish" growth that will affect the UK and that the bank hasn't ruled out responding with more stimulus if needed.
He said his officials have been preparing for Europe's debt crisis, after the bank lowered growth forecasts and raised predictions for inflation this year.
At a press conference for the quarterly Inflation Report in London, he said: "We are navigating through turbulent waters with the risk of a storm heading our way from the Continent."
Greece is heading for new elections after a political stalemate that's sent stocks falling, pushed up bond yields and raised concerns it may leave the euro.
Bank of England policy- makers voted to stop increasing bond purchases last week after some officials stepped up their rhetoric on inflation, which has been above their goal for more than two years. Mr King believes that there's a case both to expand bond purchases or to hold fewer securities and that the risks to inflation in two years are "broadly, evenly balanced".
Inflation will be about 1.6pc in two years after staying above the 2pc target for longer than it predicted in February, the central bank's forecasts show.