Bank of England governor, King says economy faces slower growth

According to Bank of England governor Mervyn King some gauges of UK inflation were ''extremely subdued.'' Analysts say this could mean King was signaling that he may favor stepping up bond purchases.

King said in a speech in Dudley, England last night that officials were conscious that the continuing high level of inflation posed a risk that inflation expectations may move up. He added that still, the danger that the slack in the economy would push price-growth below the bank's target was ''at least as large.''

Policy makers have split three ways ahead of a public-spending squeeze that finance minister George Osborne is expected to spell out today.

King said the bank would need to be ready to adapt as the economy faced slower growth while it rebalanced toward savings and exports in what he said would be a ''SOBER'' decade of ''Savings, Orderly Budgets, and Equitable Rebalancing.''

''Not only can monetary policy play a role in smoothing the rebalancing process, it needs to do so if the outlook for inflation is to remain in line with the 2 percent target in the medium term,'' King said.

Osborne, in his Comprehensive Spending Review will outline the  the biggest UK public spending cuts since World War II to tackle a record budget deficit. According to analysts, the squeeze may threaten a recovery that data showed tapered in the third quarter.