The Bank of England will investigate cutting the rate of interest paid on reserves held at the central bank, Mervyn King, the governor, said on Wednesday.

King, speaking at the quarterly press conference to mark the release of the Inflation Report, said: "It would be useful to think of ways to encourage banks to try to convert some of their reserves into, say, shorter term gilt holdings or purchases of other assets which would then reinforce the transmission mechanism of the direct asset