“The most important thing now is for the new government to deal with the challenge of the fiscal deficit. It is the single most important problem facing the United Kingdom,” King said.
“I am very pleased that there is a very clear and binding commitment to accelerate the reduction in the deficit over the lifetime of the parliament and to introduce additional measures this fiscal year to demonstrate the importance of getting to grips with that before running the risk of an adverse market reaction,” King added.
He said the program included the Conservatives' previous pledge to impose £6 billion ($9 billion) in spending cuts but did not disclose details of the coalition pact, which was expected to be published later in the day.
“Markets have been waiting for the UK election. That is now over. They would expect the new government to take decisive action,” King said.
“And the agreement that I have been informed about that has been reached between the Conservatives and the Liberal Democrats is a very strong and powerful agreement to reduce that deficit and to take more action.” Presenting the Bank's quarterly inflation report, King said prices are expected to continue increase faster than the official target in the near term, and fall back toward 2 percent next year.
That projection does not take account of the policies being formulated by the new government, King said.
He said the British economy is expected to grow in the second quarter, stretching a modest recovery to three quarters.
That expectation was reinforced on Tuesday when the Office for National Statistics said UK manufacturing output in March was 3.3 percent higher than a year ago and 2.3 percent better than the previous month.
Unemployment remained at 8 percent in the three months ending in March, matching the December-February figure, official statisticians said Wednesday.
