The Bank of England has cut its UK economy growth forecast to around 0.8% from 1.2% on Wednesday, as it warned of a "storm heading our way from the Continent."
Governor Sir Mervyn King warned that the eurozone area posed the greatest threat to the UK economic recovery.
King was speaking as the Bank of England predicted that the UK economy will not reach pre-financial crisis levels until 2014.
Mervyn King warned the UK will not return to pre-crisis levels before 2014
While the Bank said it did not see a "meaningful way" of factoring in an extreme financial event - such as the collapse of the euro - into its projections, it said the biggest risk to recovery stems from the single currency bloc, the UK's main trading partner.
As well as revising its prediction for this year's economic growth, the Bank said the rate of inflation will not fall as quickly as previously thought, and is expected to remain above the Government's 2% target "for the next year or so".
However, speaking from the City on Wednesday morning, King stressed that "forecasting is not about producing a number or a spot the ball contest," and that "the most that you can hope to do is to assess the balance of risks."
GDP is expected to grow around 2% in 2013, compared with the Bank's previous estimate of around 3%.
Meanwhile, the consumer prices index (CPI) rate of inflation is not likely to meet the 2% target until mid-2013, rather than the end of the year, and will still be around 2.5% at the end of this year.
Sir Mervyn said weak growth and high inflation have been the unavoidable consequences of the financial crisis, that have been "painful for everyone in our society".
He said: "We are navigating through turbulent waters, with the risk of a storm heading our way from the continent."
Sir Mervyn added: "Uncertainty can sometimes add a certain spice to life - as we saw vividly in the conclusion to the Premier League season at the weekend - but it has the opposite effect on the economy," referring to Manchester City's last-minute win to clinch the Premiership title on Sunday.
In response to the Bank's statement, Prime Minister David Cameron's official spokesman said: "What... the Bank of England forecasts reflect are the same issues taken into account by the Office for Budget Responsibility when it produced its forecasts at the time of the Budget.
"The governor is highlighting higher-than-expected inflation and obviously the biggest risk to the economy is what is happening in the eurozone."