Mervyn King, the Bank's governor, warned on Tuesday night that Britain was facing its greatest economic challenges in more than a decade over the coming year.

London's FTSE 100 index bounced back on Tuesday to close up 3% on Monday's disastrous performance after the US Federal Reserve cut its interest rates by three-quarters of a point.

In New York, the Dow Jones industrial average fell 465 points at the start of the session but recovered to finish down 126.24, or just over 1%.

Prime minister Gordon Brown will meet his German, French and Italian counterparts, as well as European Union president Jose Manuel Barroso, for talks at Downing Street soon to discuss ways to tackle the causes of the turbulence.

Attention has now turned to whether the Bank of England will follow the Fed's lead and introduce an emergency interest rate cut.

The Bank said it had no immediate plans to bring forward the next meeting of its Monetary Policy Committee (MPC), scheduled for February 6 and 7.

But all eyes will be on the publication on Wednesday of the minutes of the MPC's last meeting - at which it kept the rate at 5.5% - for clues to its future intentions.

Speaking to members of the Institute of Directors in Bristol, Mr King warned that food and energy prices were likely to rise this year, possibly pushing inflation over 3%.

He said: "The next year will pose economic challenges for all of us - more so than at any time since the Bank of England was given its independence in 1997."