The increase means that rates are now at their highest level since March 2020, when COVID-19 lockdowns were first implemented.

The bank’s Monetary Policy Committee (MPC) said that the invasion of Ukraine by Russia has led to further large increases in energy and other commodity prices including food prices. It added that the war is also likely to exacerbate global supply chain disruptions, and has increased the uncertainty around the economic outlook significantly.

The Bank of England said that global inflationary pressures will strengthen considerably further over the coming months, while growth in economies that are net energy importers, including the United Kingdom, is likely to slow.

Martin Beck, chief economic advisor to economic forecaster the EY ITEM Club, said: “With Bank Rate now back to its immediate pre-COVID-19 level, on that measure, monetary policy has exited ‘emergency’ settings, consistent with GDP now sitting above where it was pre-pandemic.

“Following recent rises in energy and other commodity prices, the MPC expects inflation to reach 8% in Q2 and potentially higher later this year, depending on what happens to the energy price cap in October. The Committee continues to be concerned about ‘second round effects’ – rising inflation becoming embedded in worker’s wage demands and companies’ price-setting, causing a wage-price spiral.

“However, the MPC also acknowledged that the impact of supply affecting the UK economy will depress incomes and spending. This may have contributed to today’s decision revealing an arguably more dovish committee. In February, four members voted for a 50bps rise in rates. But there was no support for such a move this month. And while February’s vote to raise the rate was unanimous, March’s meeting saw one member support keeping policy on hold. Moreover, there was no change in the policy statement’s previous wording that any further tightening would be “modest”.

Mr Beck added: “The impact of higher energy and commodity prices on the UK economy means the MPC will have to tread carefully in tightening policy further. There is nothing UK monetary policy can do to increase the supply of gas and other commodities. And changes in interest rates take 12-18 months to have their peak effect. So increases in rates now and in the near-future may kick in at a point when base effects and stable, or falling, energy prices mean inflation has fallen back significantly. Moreover, the MPC will be mindful of past episodes where central banks have over-reacted to supply shocks by raising interest rates too quickly and contributed to a recession.”

He concluded: “If, by the time of the MPC’s next policy meeting in May, more persistent inflation looks likely, another rise in Bank Rate would be a strong possibility. But if economic activity takes a serious turn and uncertainty remains elevated, the case for the MPC to hold fire and pause policy tightening would be strong. Overall, the EY ITEM Club anticipates no more than one or two further rate rises over the rest of 2022, leaving Bank Rate at 1%-1.25% at the end of this year.”

Kevin Brown, savings specialist at Scottish Friendly, added: “The UK is facing the very real prospect of inflation reaching double digits this year, a scenario that was almost unimaginable 12 months ago.

“A return to the stagflation era of the 1980s will be crippling for families on lower incomes and the Bank of England must take responsibility for not acting quicker to cap rising prices. The decision to raise interest rates by 0.25% this week suggests the Bank is still grappling with the best course of action to support consumers and the economy.

“Rather than go hard and hike rates by 0.5%, the bank has taken a more cautious approach which frankly won’t help the economy and will do nothing to rein in inflation.

“The reality is that it will hurt homeowners with variable rate mortgages and barely move the dial on saving rates. There will be many banks and building societies that carry on paying the same measly rate of interest despite the increase in the Bank of England base rate.”

He continued: “With inflationary pressures set to worsen, we expect households’ ability to save to be severely impacted in the next three to six months. Nonetheless, for families who have an emergency fund set aside that they can access easily, the next step should be to consider investing some of their money as it is one of the few ways to potentially secure inflation-beating returns.

“In the current circumstances, a little and often approach is the best course of action for most people, and that could mean starting with just £10 or £20 a month.”