Bank of England governor Mark Carney said UK economic growth will take a hit in the coming years as the Brexit-hit pound begins to weigh on wages and consumer spending.
In his first major speech this year, Mr Carney said household debt and rising consumer credit will be a key focus for the Bank's Monetary Policy Committee (MPC) as it decides whether or not to hike interest rates in the months ahead.
It comes after total household borrowing jumped 4% in the year to November, while consumer credit rose at its fastest rate since 2005, climbing more than 10% over the period.
Speaking at the London School of Economics, the Canadian said: "At present, households appear to be entirely looking through Brexit-related uncertainties."
"Over the autumn, demand growth remained more resilient than had been expected, particularly consumer spending and to a lesser extent the housing market.
"That contrasted with the less sanguine assessment of financial markets as illustrated by the further, sharp decline in the sterling exchange rate over the autumn.
"Ultimately, the tension between consumer strength on the one hand and the more pessimistic expectations of the markets on the other will be resolved.
"In the MPC's November projections, this resolution is expected to occur as imported inflation begins to weigh in the coming months on people's real incomes, slowing consumption growth."
He added: "As a consequence, growth is expected to remain below past averages for the next few years."
Mr Carney said that interest rates could go up or down as the country enters a period of higher consumer price inflation.
His comments came as the pound plunged to its lowest level for more than three months following reports that Prime Minister Theresa May will opt for a "hard Brexit", whereby Britain leaves the European single market and falls back on World Trade Organisation rules.
Sterling had dropped as low as 1.20 versus the US dollar, its lowest level since October's "flash crash".
Experts have conceded that surging prices from weak sterling will bring an end to the consumer spending spree that has helped prop up growth since the EU referendum.
The Bank has previously forecast inflation to jump as high as 2.7% this year, while influential think-thank the National Institute of Social and Economic Research has said it could hit almost 4%.
However, Mr Carney said on Wednesday that Britain's exit from the European Union was no longer the single biggest risk to UK financial stability and posed a greater threat to financial stability in Europe.
In his speech at the LSE, Mr Carney said "there remains an element of discretion" in how the MPC delivers its 2% inflation target because people value stable growth, jobs and income.
"And in exceptional circumstances, trade-offs between real stability and inflation can arise that monetary policy is required to balance.
"This is now the case given the decision of the people of the United Kingdom to leave the EU. In the coming years, the UK will redefine its openness to the movement of goods, services, people and capital.
"The flexibility and dynamism of this economy will help it adjust as its relationship with the EU becomes clearer and new opportunities with the rest of the world open up.
"Over the next few years, the magnitude of the effects of this adjustment on the economy's supply potential, domestic demand, and the value of sterling will be somewhat uncertain; and this process will have a significant bearing on inflation."
Howard Archer, chief UK and European economist at IHS Global Insights, said there were hints in Mr Carney's speech that he could revise up the Bank's outlook for the UK economy.
"The Governor did pointedly observe that since the November Bank of England forecasts, there have been signs of continued solid UK consumer momentum and a stronger growth outlook globally," he said.
"This hints that the Bank of England could be raising its near-term UK growth forecasts in its February quarterly inflation report.
"However, Carney also observed that episodes of consumption-led growth tend to be both slower and less durable."
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