The head of the Bank of England, Mervyn King, has said the Monetary Policy Committee (MPC) is willing to cut interest rates to bolster economic growth, while highlighting the "difficult balancing act" regulating the economy poses.

Addressing the Treasury Select Committee, Mr King admitted the tightening of lending conditions made cuts more likely.

But he also said he expected UK inflation, which is already above the central bank''s two percent target, to rise even further and hit around three per cent because of increasing utility bills.

"We set interest rates to meet our inflation target and we are on track. There are big risks on either side, if the evidence moves more in favour of one set of risks than another then we will respond," Mr King added.

Mr King also said the Bank of England would continue to provide financial assistance to banks where necessary in order to prevent "market shock".

Earlier this month, the Bank of England voted to keep interest rates on hold at 5.25 per cent.