The pound fell and yields on government bonds sank to record lows on Tuesday after Mervyn King, Bank of England governor, doused hopes of a swift economic rebound and warned households and businesses of a “slow and protracted” recovery.

His comments led to a sharp reassessment in financial markets of the likelihood and timing of any rise in interest rates. Investors bet that the Bank’s repo rate – currently at 0.5 per cent, the lowest in its 315-year history – would remain at extremely low levels over the next two years.