Mervyn King, the Governor of the Bank of England, did his bit to stifle inflation last year, accepting a pay increase well below the gauge of price rises used in most pay deals.

Mr King’s salary rose 2.5 per cent, to £283,564, the Bank’s annual report showed — well below the packages commanded by leading blue-chip chief executives and the retail price index of inflation, the benchmark used in most wage talks, which stood at 4.3 per cent in May.

The move mirrors the austerity championed by Gordon Brown, who earlier this year risked a political backlash when he pegged pay increases for more than one million public sector workers to below 2 per cent this year — far below any official measure used to calculate the cost of living.

However, Mr King's symbolic one-man stand against inflation could struggle to make an impact amid an exodus of Bank talent. Yesterday's annual report also suggested that the institution could be forced to pay up as its high flyers are increasingly lured to work in the City for vastly better remuneration.

According to the Society of Business Economists, the average London investment bank economists' salary and bonus stood at around £110,920 in January 2005, and has surged since. Last year, the City’s collective bonus pool soared to nearly £9 billion, the Centre for Economic and Business Research estimated.

By contrast, the Bank of England’s starting salary for PhD economists is £37,230.

The Bank’s annual report gave warning that the organisation’s “staff mix in the monetary analysis and financial stability areas has been adversely affected by a higher rate of resignation and vacancies in the past year.”

The bank employed 1,555 full-time staff and 189 part-time workers at the end of February, 5 per cent less than a year earlier, the report showed.

Soaring City wealth has also been identified as a prime factor behind London’s surging property market, which has shown little sign of slowing despite other regions coming off the boil in recent months.

Economists widely expect the Bank to raise interest rates again next month in a bid to calm inflationary pressures.

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