Britain faces tougher times throughout the coming decade, Mervyn King warned on Tuesday night in his first speech since taking over as governor of the Bank of England in July.
Interest rates would rise as the world economy recovered, there was less scope for the UK economy to grow above its long-term trend and a lack of spare capacity meant Britain would probably be more vulnerable to shocks than in the 1990s.
"When shocks, as they will, hit our economy it is almost inevitable that there will be somewhat greater volatility of both output and inflation than the remarkable stability to which we have become used in recent years," Mr King told an East Midlands Development Agency dinner in Leicester.
Although he said he was being realistic, not pessimistic, his words sounded a cautionary note amid rising expectations of a strengthening economic revival.
