Bank of England governor Mervyn King has warned inflation could reach 5 per cent if utility prices rise later this year.

In the Bank of England's inflation report, the governor if inflation did reach 5 per cent, it would fall back during 2012 and 2013.

He said inflation had been pushed up by combination of rises in commodity and import prices and an increase in the standard rate of VAT.

The governor said the outlook for GDP growth by the central bank's Monetary Policy Committee (MPC) had been revised down following a 'delayed recovery in consumption and a less pronounced boost from net exports'.

King also highlighted a slow-down in underlying activity growth at the turn of the year, adding the level of output had been 'broadly flat' over the past two quarters.

However, Kind said the 'softness' in activity seen recently was likely to be temporary with improvements in net export and a rise in business investment.

'No one knows hoe the economy will evolve over the next few years; nor how policy will need to respond,' he said, before reiterating the MPC's commitment to the 2 per cent inflation level target in the medium term.