The governor of the Bank of England has warned that Britain faces rougher economic conditions in the decade ahead.

Mervyn King said that the stronger growth enjoyed during the past few years meant it would be harder to maintain stability in future.

"There is no longer the margin of spare capacity that has provided a buffer for policy over much of the last decade," he said.

"So when shocks hit, as they will, it is almost inevitable there will be somewhat greater volatility of both output and inflation than the remarkable stability to which we have become used in recent years."