The Bank of England's gloomy forecast for the UK's economy

Inflation will not fall as quickly as thought, and is expected to remain above the Government's 2% target "for the next year or so", the Bank of England has said.

The Bank also cut its growth forecast for this year to about 0.8% from 1.2%, as it warned the UK economy will not return to pre-financial crisis levels before 2014.

The Governor of the Bank of England, Sir Mervyn King said that the Euro area poses the greatest threat to the UK recovery.

He warned that even with a "credible and effective" response from eurozone leaders, a prolonged period of sluggish growth and heightened uncertainty was still likely for the region.

He added:

Business Editor Laura Kuenssberg reports:

Sir Mervyn also confirmed plans were being drawn up by the Bank, the Treasury and Financial Services Authority in the event of a major financial catastrophe, such as the break-up of the eurozone.

Labour’s shadow Chancellor, Ed Balls, said the warning from the Bank's governor was right.

He said:

ITV News' Business Editor Laura Kuennsberg wrote about Sir Mervyn's candour over the depth of the Euro crisis in her blog.

Later, during Prime Minister's Questions, David Cameron stressed the need for reforms in Europe to boost growth as the eurozone crisis continues to cast a shadow over the continent's economies.

He also said of tackling the crisis : "The eurozone has to make a choice....It either has to make up, or it is looking at a potential break-up".

Political Editor Tom Bradby reports: