The immediate £6 billion cut in public spending proposed by the new Government won key support yesterday when the Governor of the Bank of England overcame his usual reluctance to discuss fiscal policy and gave it his enthusiastic blessing.

Mervyn King said the coalition’s deficit reduction plan was strong and powerful and that plans for £6 billion of cuts this fiscal year were sensible.

The Government took the unusual step of seeking the Bank’s approval for its strategy to reduce the deficit yesterday morning, and Mr King publicly endorsed the measure at once as he published the Bank’s quarterly Inflation Report.

An early bout of spending cuts this fiscal year would “demonstrate the importance of getting to grips [with the deficit] before running the risk of an adverse market reaction,” he said. “It is imperative that our own fiscal problems are dealt with sooner rather than later. It is the single most pressing problem facing the United Kingdom. It will take a full Parliament to deal with. And it’s very important that measures are taken straight away to demonstrate the seriousness and the credibility of the commitment to deal with that deficit.”

The coalition partners’ formal agreement, published yesterday, promised “a significantly accelerated reduction in the structural deficit over the course of a Parliament”. The Institute for Fiscal Studies said it was not clear whether that meant that austerity measures would be introduced earlier than indicated in the Conservative manifesto.

Mr King’s support appears to be an implicit rejection of recent thinking by Labour and the Liberal Democrats, which insisted during the election that the economy was too fragile to risk an immediate tightening of fiscal policy. He said that the recent events in Greece, which was forced to accept an emergency bailout, had added to the urgency of the situation.

Gilts were boosted by news of the austerity programme and by the doveish tone of the Inflation Report. Analysts said that the base rate was likely to remain at its historic low of 0.5 per cent well into next year. The June gilt future settled 59 ticks up on the day at 117.17, its highest closing level since election day. The pound slipped slightly.

Mr King conceded that while inflation had crept higher than the Bank expected three months ago, the greater risk was still that it would fall too low because of the recent scares in financial markets. “The banking crisis has turned into a potential sovereign debt crisis,” he said.

The Bank said it expected to have to write another explanatory letter to George Osborne, because inflation in April would probably come out above 3 per cent, the trigger point for such letters to the Chancellor.

Inflation, as measured by the consumer price index, hit 3.4 per cent in March, well above the 2 per cent target. The Bank blamed the rise in oil prices, the return of VAT to 17.5 per cent and the weaker pound, which boosted import prices. Mr King expected inflation to drop below target next year as fiscal policy was tightened and as excess capacity in the economy curbed firms’ ability to push through price increases.

Mr King also revealed that the Bank was likely to take on responsibility for macro-prudential supervision and have “an oversight role” in the supervision of individual banks. This suggests a partial reprieve for the Financial Services Authority, which the Conservatives had planned to break up.