Britain faces a year or more of lower living standards as a result of soaring world oil prices, the new deputy governor of the Bank of England has warned.

Charlie Bean, formerly the Bank's chief economist, said oil prices - already at a record high - could continue to rise for another two years.

Giving evidence to the Commons Treasury Committee, he warned that there was a danger of a pay-price spiral developing if workers tried to compensate by pushing up wages.

"It certainly poses a significant challenge. There is no doubt about that at all," he said.

"It may be a relatively unlikely event but it could be particularly unfortunate if it happened, if households and businesses start losing faith in the idea that inflation will stay low, round about the target, they start building it into their pay and prices and inflation becomes much more embedded into the system."

Mr Bean - who echoed recent warnings by the Governor Mervyn King and Chancellor Alistair Darling - said there was little the Bank or the Government could do prevent the fall-off in living standards.

"It is determined by global factors. As a nation, it means that our living standards will be lower than they would otherwise be," he said.

"Real living standards will have to grow less rapidly this year, and possibly part of next year, than was the case in the late 1990s and early 2000s.

"There is not very much that we can do about that as a nation unless we improve our productivity to offset it."

He said the recent pick-up in inflation should be temporary, provided pay pressures remained subdued and that oil prices did not continue to rise inexorably - although he admitted that was "open to debate".

"I don't think one can discount the possibility that oil prices will continue to rise for a while," he said.

"I think in the longer term there are good arguments for expecting them to come back, simply because there are alternative sources of supply.

"Part of the reason the oil price has risen so much recently is that those extra sources of supply haven't come on stream as rapidly as one would hope.

"It is easier to persuade people to accept a year of relatively low growth, or even cuts in their real incomes if it is for a year or a relatively short period," he said.

"But if it is for a number of years running, clearly that is a much tougher climate."

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