In addition policymakers said economic growth will be materially stronger than previously thought, with the economy now expected to expand over the next two years rather than shrink.
The rate-setting Monetary Policy Committee (MPC) forecast that the economy will be 2.25pc larger in three years time than it predicted in February – the biggest growth upgrade in its history.
Unemployment is expected to be lower than previously forecast, while pay growth is predicted to be higher. The average pay packet is expected to climb by 5pc this year.
The growth upgrades are in stark contrast to previous gloomy predictions that the economy would remain smaller than its pre-pandemic size until at least 2026.
Policymakers said there was some tentative evidence that the jobs market had started to cool.
The Bank added that only a third of the impact of previous rate rises had been felt so far, with higher borrowing costs still expected to dampen growth in the coming months.
Many people with a mortgage are “yet to experience higher rates”, the Bank said. Fixed-rate deals for 1.3m households are scheduled to expire before the end of this year, adding an average of £200 to their monthly costs as borrowers shift to new, higher rates.
Mr Bailey also warned the recent return of 100pc mortgages could result in “quite a few problems” and risk trapping borrowers in uncompetitive deals.
Skipton Building Society this week announced it would offer a deposit-free mortgage aimed at first-time buyers who keep up with rental payments.
Speaking to the BBC, he said: “I’m not going to say no to 100pc mortgages but both lenders and borrowers have to be very careful about this.”
Borrowers with no deposit can be left living in a property worth less than their mortgage if house prices slump.
Mr Bailey said: “You can get quite a few problems. People can often get stuck with mortgages for a long period of time which they can’t trade out of.”
