Other major central banks have increased rates to counteract higher prices.
On Wednesday, the US Federal Reserve announced its first hike in three years while the European Central Bank has raised rates twice since June.
Of the nine members on the Bank’s Monetary Policy Committee (MPC), six voted to hold rates at 3.75% while three – including the Bank’s chief economist Huw Pill – wanted to raise them to 4%.
While financial markets have priced in the possibility of several rate rises next year, Bailey said the global backdrop remained “hugely unpredictable at the moment”.
He said that for interest rates to come down we would need to see “an end of conflict in the Middle East… and energy prices coming really back to where they were before this conflict began”.
There were some positive notes from the Bank of England.
It said the UK economy had been “more resilient” than it had expected and now predicts economic growth of 0.4% between July and September – up from the 0.1% increase it forecast in the summer.
It also said that because the effect of higher energy costs had not yet spilled over into other areas of the economy, food price inflation was now predicted to rise 4% by the end of the year, less than the Bank’s previous forecast of 6-7%.
Households feel the impact of a rising Bank rate through higher borrowing costs, but can also benefit from more generous savings rates.
Given the global picture, and market expectations of a higher Bank rate, a host of major lenders have already increased the cost of new fixed-rate mortgages.
Ahead of the latest rate decision, Andrew Montlake, chief executive of mortgage broker Coreco, said that if “inflation proves sticky, lenders’ funding costs stay under pressure, which makes cheaper mortgages harder to deliver”.
The average two-year fixed residential mortgage rate is at its highest since 11 May, at 5.77%, while the average five-year is at its highest since 8 November 2023, at 5.83%, according to financial information service Moneyfacts.