The Bank has not adopted a more aggressive rates policy - Mr King

Mr King was quizzed by the Treasury Select Committee on whether back-to-back rate rises in May and June meant there was now a more aggressive policy.

But Mr King denied the claims, adding that a gradualist approach did not mean raising rates every three months.

Buoyant retail and house price data received before the June meeting had reinforced the need for a rise, he said.

The Bank raised interest rates for the second straight month in June - taking rates up to 4.5% - triggering concerns among economists to wonder whether the Bank had now adopted a more aggressive policy.

No 'shocks'

Mr King said news that some members of the Bank's rate-setting body - the Monetary Policy Committee (MPC) - had considered a sharper rate rise in May, may have been misinterpreted by the market.

After a year in which house prices have risen very rapidly the chances of house prices falling are greater than they were Mervyn King, Bank of England governor

"When we were able to explain our reasoning and thinking through the Inflation Report and the minutes of our main meeting then I think the markets understood that we haven't changed our basic strategic approach," he said.

"What we had changed was our view about the outlook for inflation."

He added that rates were now in the "ballpark" area of where they need to be to keep inflation on target, and with modest increases the Bank could maintain that target.

Mr King and fellow MPC members also denied that the rate rise had been deliberately intended to shock the housing market out of its recent surge.

But he stood by comments he made last week that there was now an increased risk of house prices falling - although he stressed he could not predict which way prices would move

House warning

He also warned consumers to be wary of taking on too much debt on the belief that house prices would continue "ever upwards".

"After a year in which house prices have risen very rapidly... the chances of house prices falling are greater than they were," he told the committee.

Fellow MPC member Kate Barker added that the house market was a "significant" factor in the Bank's decisions but it "does not dominate" the MPC's talks.

While the MPC voted unanimously to raise interest rates this month, minutes of its meeting showed one member thought the decision was "finely balanced".

Marian Bell told MPs she was that member and had taken the view that the decision was more "marginal" than the rest of her colleagues.

More rises?

Looking ahead, the MPC expects economic growth to remain above trend before slipping back towards normal levels.

Mr King added: "There will be volatility in inflation over the next few months, and oil prices will play their part in that, but... we think the underlying picture is of a fairly modest gradual pick up in inflation towards, and perhaps above, the target looking two years ahead."

He also suggested that rates in the UK will not have to rise by as much as in other countries thanks to the recent "pleasingly stable" period.

The UK managed to ride out the global economic slowdown that many countries are now recovering from - it was the only G7 country to experience sustained growth - and so interest rates have not had to fall as far.