King's hold on the position had been thrown into question after the fall out from the events of the last twelve months hit home, especially the circumstances surrounding Northern Rock's plight, for which he came under scrutiny.
Indeed for the first time since the creation of the Monetary Policy Committee (MPC) in 1997, King had to write a letter to the then Chancellor of the Exchequer, Gordon Brown, explaining why inflation had exceeded its 3 per cent upper limit.
However the Treasury has confirmed that King will remain Bank of England governor once his current contract expires in June.
The Chancellor, Alistair Darling, was 'delighted' at the decision.
"King has played a key role in delivering macroeconomic stability in the UK, and his leadership and experience will continue to prove invaluable to the Bank of England," he said.
Retaining his position as BoE governor, King will also remain on the MPC.
In another statement the Treasury confirmed that fellow MPC member Dr Andrew Sentance will also hold onto his Committee position when his term expires at the end of May.
