Bailey said he could "see the argument" for a further rate hike, before taking a "more conditional approach, dependent on the evidence on energy prices and inflation dynamics".

However, members of the rate-setting committee offered different views on the path forward.

Clare Lombardelli agreed there was "likely to be a case for a further increase in rates in the near term", but Megan Greene said any decision would depend on how inflation impacts wages, prices and the jobs market.

Alan Taylor said the rate rise was a "a risk-management 'one-for-now' insurance hike".

The Consumer Prices Index (CPI) measure of inflation is well below its peak of a few years ago but has been heading back up and is expected to go higher.

It was 3.5% in the year to September 2026, up from 3.1% the previous month and well above the central bank's 2% target.

The ongoing impact of the Iran war, primarily on the cost of energy and fuel, has filtered through to the UK inflation rate. Millions of domestic energy customers are braced for a hefty rise in prices in January.

The Bank said in its central forecast it expected inflation to peak at 4.9% in the middle of next year, higher than it originally estimated, and not return to its target of 2% until 2028.

In what it called an "adverse scenario", where the US-Iran war could escalate further and send oil and gas prices much higher, inflation could reach 6.2% in 2027, it suggested.

While the UK cannot control global energy prices, the Bank is raising rates in order to limit the knock-on effects of high energy prices resulting in inflation going up across the board.

The Bank of England last raised rates in August 2023.

Its base rate is what it charges other banks and building societies to borrow money, which influences what they charge their own customers for mortgages as well as the interest rate they pay on savings.