The Bank of England put a hold on its unprecedented £200 billion sterling asset-buying programme for the first time in 11 months today, but left the door open for more quantitative easing if the economy relapsed.
The pause in quantitative easing and the decision to hold interest rates at a record low of 0.5% had been widely expected.
'The Committee will continue to monitor the appropriate scale of the asset purchase programme and further purchases would be made should the outlook warrant them,' the Bank of England said in a statement.
Analysts said it would be a long while yet before the bank moved toward tightening monetary policy after the extraordinary measures taken over the last year.
Meanwhile in Frankfurt, the European Central Bank also made no change in policy and is expected to hold off until March before looking at further unwinding its crisis support measures.
The Bank of England started buying assets, mostly gilts, last March with newly-created money in an effort to boost the economy but the £200 billion it had so far sanctioned was exhausted last week.
Today the bank predicted that the UK's economic recovery would be gradual and the high degree of spare capacity in the economy would mean that inflation would fall below target for a period.
It appeared relaxed about a spike in the inflation rate in December, noting that it would probably go higher still but that this was mostly because of base effects. The jury remains out on whether quantitative easing worked.
Critics note the economy grew by just 0.1% in the last quarter of 2009 after an 18-month downturn that wiped out 6% of output and left Britain as the last major country out of recession. But others say the outcome would have been much worse if the central bank had not acted.
The only similar previous example of such a move had been in Japan in the part of the last decade. Many note the Japanese economy has never really roared back to life.
But last year, the Bank of England, like many central banks around the world, found it had no choice but to sail into previously uncharted waters to prevent the economy sinking into the rocks.
So in March it cut interest rates to just 0.5% and embarked on a £75 billion asset-buying programme. Another £50 billion was added in May and in August, and then £25 billion in November, taking the total to £200 billion.
The bank said that while QE was on hold, it would continue to buy high quality private sector assets on behalf of the government financed through the issue of treasury bills.
