Mervyn King, the governor of the Bank of England, gave his support to Gordon Brown's call for a limit on public-sector pay rises yesterday and warned all wage bargainers that the Bank intended to keep inflation at its target of 2 per cent.

Giving evidence to a committee of MPs, Mr King said it was "very important in the pay round that wages don't pick up to compensate for the rise in inflation" caused by higher oil prices. He suggested that if pay rises did pick up, it would put upward pressure on interest rates.