Financial markets are facing a more dangerous situation now than during the financial crisis of 2008, Bank of England policymaker Paul Fisher was quoted as saying on Monday.
Fisher, who is the central bank's executive director of markets and sits on the Monetary Policy Committee, also said governments had fewer options to deal with the current crisis because of their stretched public finances.
He said the euro zone crisis posed the biggest threat to Britain's economy if it resulted in a negative shock which pushed the UK into recession and deflation.
Concern about the currency bloc's continuing debt woes and its impact on the UK economy was one of the reasons the BoE relaunched its quantitative easing asset buying programme in October with a 75 billion pound cash injection.
The BoE's quarterly bulletin published on Monday highlighted weak consumer spending as another main reason for Britain's weak economic performance.
Most analysts reckon the central bank will expand the programme again by February.
Most people in financial markets have not lived through an episode like this before, Fisher told newswire Market News in an interview.
He said that while the situation is in some ways not as bad in terms of market stress, it is at the same time potentially more dangerous.
Fisher was quoted as saying that whereas in 2008, governments had more leeway and cash available to stimulate their economies and bail out banks, today that sovereign backstop is less clear.
The policy out is going to be more difficult than it was in 2009, given the current position of the sovereigns.
Fisher said the BoE's asset purchase programme was only effective because it has a credible inflation-targeting regime, and he noted that price expectations remained anchored, even though inflation is still more than double the 2 percent target.
The BoE expects inflation to fall sharply early next year as this year's rise in value added tax falls out of the statistics, but Fisher said the central bank may have to rethink its policy action if it does not.
Even now it is very important that inflation comes down. If it doesn't then we will have to look at the policy stance, Fisher said.
However, he said an escalation of the euro zone crisis that pushed Britain into recession and resulted in deflation still posed a bigger threat than inflation.
(This is the) bigger risk at the moment than inflation staying at 5 percent.
(Reporting by Fiona Shaikh; editing by Anna Willard)