Carlo Ancelotti believes England still have plenty of potential, despite their early exit at Euro 2016, and has described Eric Dier as one of the best players at the tournament.

Roy Hodgson's side went into the competition aiming to become the first England team in a decade to reach a quarter-final but were instead humbled by Iceland in the round of 16.

Such a chastening defeat - and Hodgson's resignation - has sparked an inquest into England's ongoing failure to deliver when it matters most.

FA chairman Greg Dyke has questioned why anyone would be interested in taking the England job but Ancelotti has played down the impact of the nation's latest defeat.

The incoming Bayern Munich boss is adamant England's young players have time on their side and the future is not as bleak as some would suggest.

"As an Italian you will wonder if I can empathise with what those of you who support the Three Lions are going through," Ancelotti told the Telegraph.

"But really, it is not as bed as you think. Let me tell you one thing: this England team has a lot of potential.

"I like these young players that Roy Hodgson picked. I think Eric Dier has been one of the best players in the tournament.

Player Ratings: England vs Iceland 14 show all Player Ratings: England vs Iceland 1/14 Standard Sport assesses the individual performances from England's clash with Iceland. VALERY HACHE/AFP/Getty Images 2/14 Joe Hart: 3 Simply not good enough. Can have no excuses for allowing Kolbeinn Sigthorsson's effort to squirm past him. ANNE-CHRISTINE POUJOULAT/AFP/Getty Images 3/14 Kyle Walker: 4 Showed plenty of attacking intent but was guilty of awful defending when he did not track Ragnar Sigurdsson for the equaliser. BERTRAND LANGLOIS/AFP/Getty Images 4/14 Gary Cahill: 3 A sheep not a shepherd. When he was looked upon to provide leadership he had no answers. Struggled to dominate players who he should have kept on the fringes of the game. ANNE-CHRISTINE POUJOULAT/AFP/Getty Images 5/14 Chris Smalling: 4 Failed to take command in the air and was unable to answer of the questions that were hanging over his head prior to the start of the tournament. Alex Livesey/Getty Images 6/14 Danny Rose: 5 The best of a bad bunch in regards to the back four but unable to make a significant impact in either third of the pitch. ANNE-CHRISTINE POUJOULAT/AFP/Getty Images 7/14 Dele Alli: 4 Showed some nice touches and was full of running but the swagger that look effortless when he is in a Spurs shirt was nowhere to be seen. TOBIAS SCHWARZ/AFP/Getty Images 8/14 Eric Dier: 4 Struggled to dictate the tempo during the opening exchanges, which were played at a hundred miles an hour, and paid the price. Hooked at half time. BERTRAND LANGLOIS/AFP/Getty Images 9/14 Wayne Rooney: 4 Tucked home his penalty calmly and saw plenty of the ball but was unable to find a way through the Icelandic wall. BERTRAND LANGLOIS/AFP/Getty Images 10/14 Daniel Sturridge: 3 Woefully ineffective on the flank. Not suited to the task. Laurence Griffiths/Getty Images 11/14 Harry Kane: 4 Has endured a disastrous tournament and saved his worst performance for last. Should be nowhere near free kicks. ANNE-CHRISTINE POUJOULAT/AFP/Getty Images 12/14 Raheem Sterling: 4 Did well to win the penalty early on but failed to build on a bright start and faded badly. Alex Livesey/Getty Images 13/14 Jack Wilshere (sub): 4 Brought on to add a bit more emphasis to England's passing but the game passed him by. AFP/Getty Images 14/14 Jamie Vardy (sub): 5 Replaced Sterling with half an hour on the clock but made little to no impact. AFP/Getty Images 1/14 Standard Sport assesses the individual performances from England's clash with Iceland. VALERY HACHE/AFP/Getty Images 2/14 Joe Hart: 3 Simply not good enough. Can have no excuses for allowing Kolbeinn Sigthorsson's effort to squirm past him. ANNE-CHRISTINE POUJOULAT/AFP/Getty Images 3/14 Kyle Walker: 4 Showed plenty of attacking intent but was guilty of awful defending when he did not track Ragnar Sigurdsson for the equaliser. BERTRAND LANGLOIS/AFP/Getty Images 4/14 Gary Cahill: 3 A sheep not a shepherd. When he was looked upon to provide leadership he had no answers. Struggled to dominate players who he should have kept on the fringes of the game. ANNE-CHRISTINE POUJOULAT/AFP/Getty Images 5/14 Chris Smalling: 4 Failed to take command in the air and was unable to answer of the questions that were hanging over his head prior to the start of the tournament. Alex Livesey/Getty Images 6/14 Danny Rose: 5 The best of a bad bunch in regards to the back four but unable to make a significant impact in either third of the pitch. ANNE-CHRISTINE POUJOULAT/AFP/Getty Images 7/14 Dele Alli: 4 Showed some nice touches and was full of running but the swagger that look effortless when he is in a Spurs shirt was nowhere to be seen. TOBIAS SCHWARZ/AFP/Getty Images 8/14 Eric Dier: 4 Struggled to dictate the tempo during the opening exchanges, which were played at a hundred miles an hour, and paid the price. Hooked at half time. BERTRAND LANGLOIS/AFP/Getty Images 9/14 Wayne Rooney: 4 Tucked home his penalty calmly and saw plenty of the ball but was unable to find a way through the Icelandic wall. BERTRAND LANGLOIS/AFP/Getty Images 10/14 Daniel Sturridge: 3 Woefully ineffective on the flank. Not suited to the task. Laurence Griffiths/Getty Images 11/14 Harry Kane: 4 Has endured a disastrous tournament and saved his worst performance for last. Should be nowhere near free kicks. ANNE-CHRISTINE POUJOULAT/AFP/Getty Images 12/14 Raheem Sterling: 4 Did well to win the penalty early on but failed to build on a bright start and faded badly. Alex Livesey/Getty Images 13/14 Jack Wilshere (sub): 4 Brought on to add a bit more emphasis to England's passing but the game passed him by. AFP/Getty Images 14/14 Jamie Vardy (sub): 5 Replaced Sterling with half an hour on the clock but made little to no impact. AFP/Getty Images

"Dele Alli will be playing Champions League football next season and he will be one of the best young players in the competition," he added.

Questions are continuously asked of England's youngsters as many struggle to receive regular game time in the Premier League.

But Ancelotti has defended the talent making their way through and believes every nation must endure barren years on the route to success.

"England have a future. They were the second-youngest team in this tournament.

"It does not surprise me that they have some good young players, because I could see when I was at Chelsea that the level of boys' football is technically very good.

"Every nation goes through periods when they do not produce enough quality players.

"The most important things is that you keep trying and eventually the flow restarts," he added.