Carney Reins In Market View on Pace of Increases

U.K. bond investors are scaling back expectations for the pace of Bank of England rate increases as policy makers warn a sharp rise in borrowing costs may derail the recovery.

The extra yield investors demand to hold five-year gilts over two-year securities is below the 3 1/2-year high reached last month, even after a report today showed the unemployment rate has dropped to 7.1 percent. BOE Governor Mark Carney said last week the central bank needed to consider the ability of households to pay their debts as he ruled out a “dramatic” increase in rates. Minutes of the central bank’s January meeting show policy makers saw no need to raise interest rates soon.