Bank of England governor Mervyn King has said the financial crisis is "far from over" despite there being clear signs of economic recovery.
His comments came as the Bank's quarterly inflation report predicted a pick up in growth.
The document also said that the pace of recovery will be dampened by the need for "substantial fiscal tightening" and a further strengthening of banks' balance sheets.
Mr King said he had been told of the fiscal plans of the new coalition and that he was pleased there was a binding commitment to accelerating deficit reduction.
As for inflation, the Bank predicts it will remain above the 2 per cent target for the rest of 2010.
But it is then expected to fall below this level and remain under 2 per cent for much of the following two years, even if interest rates remain on hold.