The move will have a knock-on effect on savers and anyone who wants to borrow money, as well as impacting mortgage costs.
According to Martin Lewis, the Money Saving Expert, some people on tracker deals with £100,000 remaining on their mortgage will see their costs rise by £480 per year.
Mr Bailey also warned that the UK was headed for a “prolonged” recession. But what does it all mean for the value of your home and the housing market more broadly?
What is happening to house prices?
House prices are falling because there is less demand in the market. Fewer people want to buy a house.
This is for two reasons. First, previous hikes to interest levels have resulted in higher mortgage rates.
This simply means that it is now more expensive to take out a mortgage than it was earlier in the year - even if the mortgage amount is the same.
Secondly, people generally have less money in their pockets because of soaring inflation - or rising prices.
Food, energy and fuel have become more expensive, meaning people have less disposable income.
According to Nationwide the average house price in the UK dropped for the first time in 15 months in October, from £272,259 to £268,282.
Should I sell my home?
People who already have their homes on the market will be keen to sell them as soon as possible.
The Bank warned on Thursday that interest rates and inflation are yet to peak and that the country is heading into a prolonged recession.
All of these factors mean that house prices are likely to fall further. According to Savills, house prices may drop by about 10 per cent next year.
If you are not in a rush to sell your house then you should probably wait until the economic storm clouds have passed, experts say.
What if I’m a first-time buyer?
First-time buyers are stuck in a sort of Catch-22 scenario. House prices are becoming cheaper but interest rates remain high, meaning those looking for their first home will be able to afford less when getting a mortgage.
Is now a good time to buy?
If you are among the small proportion of the public who doesn’t need to take out a mortgage then now is a good time to buy because prices are dropping.
It would be a good idea to wait until next year when prices are expected to hit their lowest ebb.