The Bank of England will tighten its focus on ballooning household debt as consumers continue to spend in the face of a financial squeeze from rising inflation.
In his first major speech of the new year, Mark Carney said household debt and rising consumer credit will be a key issue for the Bank's Monetary Policy Committee (MPC) as it decides whether or not to hike interest rates.
It comes after total household borrowing jumped 4% in the year to November, while consumer credit rose at its fastest rate since 2005, climbing more than 10% over the period.
The Bank governor said that interest rates could go up or down in the months ahead as the country enters a period of higher consumer price inflation.
Speaking at the London School of Economics (LSE), Mr Carney said UK economic growth will take a hit in the coming years as the Brexit-hit pound begins to weigh on wages and consumer spending.
"At present, households appear to be entirely looking through Brexit-related uncertainties."
He added: "Ultimately, the tension between consumer strength on the one hand and the more pessimistic expectations of the markets on the other will be resolved.
"In the MPC's November projections, this resolution is expected to occur as imported inflation begins to weigh in the coming months on people's real incomes, slowing consumption growth.
"As a consequence, growth is expected to remain below past averages for the next few years."
His comments came as the pound plunged to its lowest level for more than three months following reports that Prime Minister Theresa May will opt for a "hard Brexit", whereby Britain leaves the European single market and falls back on World Trade Organisation rules.
Sterling had dropped as low as 1.20 versus the US dollar, its lowest level since October's "flash crash".
Experts have conceded that surging prices from weak sterling will bring an end to the consumer spending spree that has helped prop up growth since the EU referendum.
The Bank has previously forecast inflation to jump as high as 2.7% this year, while influential think-thank the National Institute of Social and Economic Research has said it could hit almost 4%.
However, Mr Carney said on Wednesday that Britain's exit from the European Union was no longer the single biggest risk to UK financial stability and posed a greater threat to financial stability in Europe.
In his speech at the LSE, Mr Carney said "there remains an element of discretion" in how the MPC delivers its 2% inflation target because people value stable growth, jobs and income."
"And in exceptional circumstances, trade-offs between real stability and inflation can arise that monetary policy is required to balance.
"This is now the case given the decision of the people of the United Kingdom to leave the EU. In the coming years, the UK will redefine its openness to the movement of goods, services, people and capital.
"The flexibility and dynamism of this economy will help it adjust as its relationship with the EU becomes clearer and new opportunities with the rest of the world open up."
His comments came as higher petrol and food prices look set to send inflation to a 28-month high when official figures are released on Tuesday.
The Consumer Price Index (CPI) measure of inflation is forecast to hit 1.4% in December, up from 1.2% in November and 0.9% in October.
Defending the Bank's gloomy outlook on Brexit, Mr Carney said the action it had taken to stabilise financial markets had helped, adding: "(Brexit) is no longer the biggest financial stability risk if you have got through the night."
Howard Archer, chief UK and European economist at IHS Global Insights, said there were hints in Mr Carney's speech that he could revise up the Bank's outlook for the UK economy.
"The Governor did pointedly observe that since the November Bank of England forecasts, there have been signs of continued solid UK consumer momentum and a stronger growth outlook globally.
"This hints that the Bank of England could be raising its near-term UK growth forecasts in its February quarterly inflation report.
"However, Carney also observed that episodes of consumption-led growth tend to be both slower and less durable."