The Bank of England inflation report hinting at further interest rises and the increased UK security threat have left the pound a little shaken but largely unchanged.

One pound now stands $1.90785, 219.185 yen and €1.47915.

Despite arrests made overnight by British police surrounding a bomb plot, the security services have upped the security threat to "critical".

The MI5 website now states: "The current threat level is assessed as critical.

"This means that an attack is expected imminently and indicates an extremely high level of threat to the UK."

US security warnings have also been raised.

As a response, the pound fell on the Tokyo markets but recovered losses later on.

Yesterday's Bank of England quarterly inflation report, which predicted higher than expected inflation and growth and hinted at a further interest rate rise, did not raise sterling greatly.

Reuters reports the markets were expecting a more hawkish stance from the bank, hence the short gains.