THE Governor of the Bank of England last night gave his clearest indication yet that interest rates will not rise in the near future on a day fresh fears were raised about the state of the UK economy.

Mervyn King vigorously defended his Monetary Policy Committee’s (MPC) record of not raising rates from their historically low level of 0.5% despite growing concern among commentators about rising inflation.

The governor was speaking on a visit to Newcastle after official figures revealed that the UK economy shrank by a worse-than-expected 0.5% in the final quarter of 2010.

The data from the Office for National Statistics heightened fears that the UK could face a double-dip recession.

In his speech, Mr King said the growth statistics were proof that the “recovery would be choppy”.

But he rounded on critics who have suggested the MPC should have taken swifter action to stop inflation rising to 3.7% by the end of last year – way above the committee’s target of 2%.

Mr King said that increasing rates would only have served to further depress the economy – making the recovery slower, unemployment higher and further eroding living standards.

“Of course it is possible to argue that the current recession should have been even deeper in order to keep inflation closer to target,” he told the audience at the Civic Centre. “But that proposition is one few commentators seem willing to embrace, nor is it consistent with the remit given to the MPC.”

Mr King stressed that the upward pressure on prices was not being driven by domestic factors but by rising energy prices, food prices and import prices – none of which could be controlled by raising interest rates.

He added that real wages - one of the main domestic drivers of inflation - actually fell during the course of 2010 and were likely to do so again during 2011.