Mervyn King turned down a pay rise of nearly £100,000 at the start of this month when he began his second five-year term as governor of the Bank of England.

Instead of accepting pay of between £375,000 and £400,000 as recommended by an external review of senior Bank salaries, a third higher than his 2007-08 remuneration, he opted to take an increase of just 2.5 per cent. This is the standard rise the Bank offers its senior staff every year. He is now locked into that annual increase for the rest of his five-year term.

The governor has made it clear that he hopes households in Britain will not seek to defend the real value of their wages as inflation rises. But he has exhibited even more restraint than he is seeking from others.

Mr King is going still further. Since his pension is now fully accrued, he will also earn no annual pension contribution from the Bank - unlike in the year to February 2008, when the cash equivalent of his increased pension rights was £229,100. But when he does retire, he has already accrued pension rights of £179,200 a year.

There are few recent examples among either financial regulators or British commercial banks of recommended pay increases being waived. The senior management of the Financial Services Authority is paid considerably more than the Bank governor, with Hector Sants, the FSA chief executive, earning £661,948 in the most recent financial year.

Details of the Bank's remuneration is contained in its annual report, published yesterday, which includes another warning from Mr King about the need to keep the public's inflation expectations in check.

"We cannot take for granted that inflation expectations for the medium term will remain firmly anchored on the target," Mr King says in a forward that contains similar messages on inflation and the credit crisis to his recent speeches and testimony. He concedes again that the Northern Rock debacle last year exposed the weakness in Britain's financial regulatory structure, but insists that he supports the government's proposed reforms. The country now has a "once-in-a-generation opportunity to create a new regime for dealing with financial crises", he says.

"It is absolutely vital that we do not squander this opportunity by relaxing our efforts to make improvements once the market pressures around us start to diminish."

The report also includes some sketchy details of the Bank's interest receipts from Northern Rock, from which it received £26m in the first few weeks after it sought emergency funds from the Bank as lender of last resort. This related to the initial £11bn Northern Rock borrowed from mid-September to October 9, backed by top quality collateral.

After October, when Northern Rock's financial position was deteriorating quickly, the Bank began to lend on against the company, rather than against specific assets, and allowed interest to be rolled up into the loan's principal rather than paid when due. This much riskier lending required an indemnity from the Treasury.