Cameron and King urge euro action

Sir Mervyn King and David Cameron have led an attack on a lack of progress in tackling the eurozone crisis as the region's problems threatened to hamper UK growth.

The Bank of England governor said the single-currency bloc was "tearing itself apart without any obvious solution" while the Prime Minister said the area faced a "make up or break up" scenario.

The stark warnings came as financial markets suffered further losses after Greek leaders braced themselves for fresh elections when talks to form a coalition government failed.

Presenting the Bank's quarterly inflation report, Sir Mervyn confirmed he and his colleagues were working on contingency plans in the event of a worst-case scenario for the euro.

Warning that the UK was at risk of being in the path of the eurozone storm, the governor ruled out a return to pre-financial crisis levels of growth before 2014 - with the Bank now expecting insignificant growth in 2012.

He repeated his calls for European leaders to deliver a "credible solution" to the region's crisis while Mr Cameron later in the House of Commons urged his continental counterparts not to "put off" much-needed action.

In a further blow to UK households, the Bank said the rate of inflation will fall more slowly than previously expected, remaining above the Government's 2% target for the next year or so.

But even after slashing its growth forecasts to 0.8% in 2012 and 2% in 2013, down from 1.2% and 3% respectively, some economists said the Bank was still being "too optimistic", prompting expectations for more quantitative easing later this year.

Sir Mervyn 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.

Mr Cameron has repeatedly made the case for the eurozone to take "decisive action" to restore stability. He told MPs: "If the eurozone wants to continue as it is, then it has got to build a proper firewall, it has got to take steps to secure the weakest members of the eurozone, or it is going to have to work out if it has to go in a different direction."