[ForexNews]

The MPC kept its policy rate unchanged at 0.5% and the amount of asset purchases steady at GBP200bn, as expected by the market consensus. This is a near-term modest positive for GBP as short positions that were put on by some in the market in expectation of a QE extension are squared up. The monetary policy statement itself was studiously neutral, with the MPC noting that growth had been sluggish and credit conditions remained tight, but also highlighting that inflation had risen sharply (but is likely to move back below target later this year), household spending was up and the decline in business investment had eased. The expectation is that monetary stimulus along with the weak level of exchange rate and continuation of the global recovery will support domestic activity. The MPC will be releasing its inflation and growth forecasts in the Inflation Report on Wednesday of next week (10 February). This will be the next key event to watch for. It is clear that the MPC remains on data watch and keeps the door open for further asset purchases in the future: "The Committee will continue to monitor the appropriate scale of the asset purchase program and further purchases would be made should the outlook warrant them." On a side note, the BoE also announced that they are going to continue buying private sector debt, but this will be financed by the issuance of treasury bills – ie, not further QE.