Bank of England Governor Mervyn King has insisted there are "a few signs" of recovery in the British economy.
But Mr King warned that any recovery would be slow and that the crisis in the euro zone had cast a "black cloud of uncertainty" over businesses around the world.
In his first live television interview, the Bank of England boss told euro zone finance ministers that "now is the time" for them to settle the future of the currency.
In a wide-ranging interview on Channel 4 News, Mr King also cautioned Chancellor George Osborne not to water down the proposals for reform of the UK's banks proposed in John Vickers' review.
And following reports that the UK government could miss its target of beginning to see national debt falling by 2015/16, Mr King said that would be acceptable only if the global economy was growing slowly.
Mr King said he predicted a "zig-zag year" for the UK economy. "The last quarter was down, I think the next quarter will probably be up," he said.
"I think we are beginning to see a few signs now of a slow recovery, but it will be a slow recovery, after a banking crisis one can't expect to get back to normal and I fear it will take a long time," he added.
He said the recovery would depend on events in the euro area and in other economies such as the US and China. The euro zone countries had been working hard to avoid triggering a Lehman-style collapse in the markets, but there was no "guarantee that they will be able to do that".
"I think it's this black cloud of uncertainty which is hanging over British business as it is hanging over American business," he said.
But the European Central Bank's actions to support the currency had bought some breathing space, Mr King added. "Now is the time that they have to decide exactly what kind of monetary union they want," he said.
Mr King acknowledged that a break-up of the euro zone would be "extremely difficult for all concerned" but "we would come through it" and preparations had been made for such an eventuality.
"I think it would have been irresponsible not to have made preparations or contingency plans for it," he said.
He said the actions necessary to reform the UK's banking system were "straightforward" but would depend on Parliament.
King says he did not demand Diamond sacking
The Bank of England Governor also has denied telling Barclays to fire former chief executive Bob Diamond but admitted he offered the lender "helpful" advice about the views of regulators.
Mr King has previously acknowledged telling Barclays chairman Marcus Agius that Mr Diamond had lost the confidence of regulators following the Libor-rigging scandal - a discussion which prompted Mr Diamond to resign.
"I didn't fire anybody. I had a conversation which I thought would be helpful for them in understanding how concerned the regulators were," he insisted during his Channel 4 interview.
"I said to them that I really wanted them to understand how concerned the regulators were. Sometimes you can hear the message from the regulators and not really engage in it','' he said.
"Sometimes it can be helpful to have a third party say 'Do you really understand how worried they are?' and I think they found that helpful," he added.
