Brown reproaches Bank for slowdown

Last month, BoE governor Mervyn King claimed the reduction in spending was down to a high UK tax burden and utility bill increases.

"One factor is the quite sharp rise in the ratio of taxes to household disposable income," King said.

"That ratio has gone up by almost two percentage points in the past two years [and] has contributed to the sharp slowing in real household disposable incomes in the second half of 2004. It’s not surprising, therefore, that with that slowing, households spent less."

But when questioned about King's claims by Conservative MPs during a Treasury Select Committee hearing, the chancellor said he believed "in retrospect the governor would have talked about interest rates."

Brown added that it was significant that rates increase four times during the run-up to the general election.

"That was bound to be the major factor in affecting consumer spending," he said.

"I don't think anybody should be in any doubt that four interest-rate rises was bound to be the major factor in affecting consumer demand in the economy."

Brown's comments come just days after he was forced to backtrack on his economic growth forecasts.

In March, the chancellor predicted the UK economy would grow by between 3% and 3.55 this year, but during his Pre-Budget announcement on Monday he admitted the figure would actually be 1.75%.

Yesterday, the BoE's Monetary Policy Committee kept interest rates on hold at 4.5%.