Britain's economic recovery faces headwinds from the unresolved euro zone crisis, the coalition government's spending cuts and tight credit conditions, Bank of England Governor Mervyn King said on Wednesday.

Presenting the Bank's latest forecasts, King said growth was likely to be choppy in 2012 as an extra holiday for the Queen's Diamond Jubilee celebration would distort output trends.

These remain...challenging times for the UK economy. Substantial headwinds are hampering our recovery and rebalancing, King said at a news conference.

Today's (inflation) report explains that further falls in inflation are in prospect as the effect of external factors wanes and a weak near-term growth outlook adds to the margin of slack in the economy, he said.

The Bank of England upped its inflation forecast for two years from now to around 1.8 percent on Wednesday, higher than most economists had expected, raising doubts about further quantitative easing.

The quarterly Inflation Report predicted sluggish growth in the short term, and said that the euro zone crisis posed the biggest threat to Britain's economic recovery.

Last week the BoE's Monetary Policy Committee voted for another 50 billion pounds of quantitative easing over the next three months, taking the total to 325 billion pounds.

(Reporting by Sven Egenter; editing by Anna Willard)