The Bank of England kept its main interest rate unchanged on Thursday at the 15-year high of 5.25 per cent and indicated that borrowing costs will likely remain at these sort of elevated levels for a while, especially if oil and gas prices increase sharply in light of the conflict between Israel and Hamas.

In a statement, the bank's nine-member Monetary Policy Committee indicated that inflation, as measured by the consumer price index, is set to fall quite dramatically in the next month but will need time to get toward its 2 per cent target rate over the coming year.

“We've held rates unchanged this month, but we'll be watching closely to see if further rate increases are needed,” Bank of England Governor Andrew Bailey said. "But even if they are not, it is much too early to be thinking about rate cuts.”

Minutes to the meeting showed that three of the nine members of the policy committee backed a quarter-point increase to 5.5 per cent in order to push down harder on the inflation rate, which stood at 6.7 per cent in the year to September.

In economic projections accompanying the decision, the bank said inflation is set to fall to below 5 per cent in October as domestic energy bills fall. However, it cautioned that oil and gas prices may start to rise again in light of the Israel-Hamas war.

“It does create uncertainty. It does, I think, create a risk of higher energy prices," Bailey said. “So far, I would say, that hasn't happened, and that's obviously encouraging, but the risk remains.”

Officials had previously thought that inflation would return to the 2 per cent target by the second quarter of 2025. But they revised the forecast on Thursday to say that inflation would remain above 2 per cent until the final quarter of 2025.

The bank in September ended a nearly two-year run of interest rate rises. The US Federal Reserve and the European Central Bank have also held interest rates over the past week.

The Bank of England, like other central banks, raised interest rates aggressively from near zero as it sought to counter price rises first stoked by supply chain issues during the coronavirus pandemic and then Russia's invasion of Ukraine, which pushed up food and energy costs.

Higher interest rates, which cool the economy by making it more expensive to borrow and bearing down on spending, have contributed to bringing down inflation worldwide.

The pain of higher interest rates is still to come for many homeowners in the UK Unlike in the United States, for example, most homeowners in the UK lock in mortgage rates for only a few years. Those whose deals expire soon — an estimated 2 million households over the coming year — know that they face much higher borrowing costs in light of the sharp rise in interest rates over the past couple of years.

Though a predicted recession has not materialized over the past year, the economic backdrop is hardly ideal for the governing Conservative Party given that a general election must take place by January 2025.

Treasury chief Jeremy Hunt said a budget statement he is due to deliver later this month will look to “boost economic growth by unlocking private investment”, and "delivering a more productive British state”.

Ahead of that statement, the bank indicated Thursday that a recession was unlikely for now but that growth will be modest, at best.

“We are forecast to have gone from low growth to no growth, with working people paying the price," Rachel Reeves, the economy spokesperson for the main opposition Labour Party, said.

Labour has not occupied the prime minister's office for 13 years, but polls indicate the party now has a big lead over the Conservatives.