The Bank of England is still roiling in the midst of the credit crisis that began last summer, and says central banks are now facing the “largest ever peacetime liquidity crisis.” The statements were made by Bank of England Deputy Governor Rachel Lomax today at the Institute of Economic Affairs and reported by the Telegraph.

“Each week seems to highlight some new dimension of the ensuing disruption to core financial markets,” Lomax said. “Clearly the situation is still developing. And its impact on the wider economic outlook—global and domestic—will depend critically on what happens from now on. Here there are some major uncertainties.”

Lomax said an economic correction following an extended period of “plentiful liquidity” and insufficient risk management was expected by the bank, but that the timing and degree of the crisis had come as a surprise, the Telegraph reported.

It was, she said, impossible to predict how much the value of assets beyond subprime mortgages would be impaired after this particular cycle had run its course.”Many people, including the Bank of England, foresaw that some form of correction in financial markets was highly likely, even inevitable.”But it was another matter altogether to predict the precise nature and timing of the present crisis. The extent of the reverberations across different markets was certainly not fully appreciated,” she said.

Lomax backed up comments made by Bank of England Governor Mervyn King indicating that rising inflation would probably keep the Monetary Policy Committee from cutting interest rates as it faces slowing growth and surging prices.

For more on the principles of inflation and its effects on fiat currencies like the pound and dollar, read “Why the U.S. Dollar Constantly Loses Value.”