The committee voted by a majority of 5-4 at a meeting yesterday.

The increase came as the Bank warned that the cost of living in the UK could increase even further.

The cost of living is expected to rise faster than pay, putting huge pressure on household finances. Rising gas and electricity costs are the main factors pushing up prices across the economy.

Kevin Brown, saving specialist at Scottish Friendly, commented on the announcement: “This is the first time in nearly 18 years that the Bank of England has raised interest rates on back-to-back occasions. It won’t be enough to suddenly ease inflationary pressures but it is a clear sign of intent.

“By raising rates in quick succession, the Bank is showing that it is willing to act decisively to bring inflation back down, but will this soft increase be enough? It was guilty of underestimating how quickly and how severely inflation would rise last year and it’s now playing catch up.

“Inflation is likely to carry on rising towards 6% and beyond in 2022 with wholesale energy costs and food prices still soaring, which means the Bank will have to decide whether to keep pushing up borrowing costs.

“This might be good news for savers if banks do choose to pass on higher interest rates to customers, but many households will be more concerned with whether they can save at all.”

He added: “Millions of families are going to be paying hundreds of pounds more in gas and electricity after today’s announcement that the energy price cap will increase by an eyewatering 54%. If the average household is forking out an extra £700 a year, how many families will still find money left to save?

“For homeowners, today’s hike could push up monthly payments for those not on fixed rate deals and with the prospect of further rate rises on the horizon, now could be a good time to look into the possibility of remortgaging and finding a better deal.”

Luke Bartholomew, senior economist, abrdn, said: “The decision to increase rates by 0.25% today was widely expected by markets, but the fact that four members of the Monetary Policy Committee voted for a 0.5% increase will come as a shock to many.

“Investors and households have got used to quite gradual increases in the level of rates, so the fact that so many policy makers thought a large increase was appropriate today will put markets at notice that more sudden shifts in policy are possible, which will increase uncertainty and volatility.

“It is also a sign of how concerned the Bank is about the inflation environment. With the announcement today from Ofgem of raising energy prices, inflation will continue to move higher until at least April this year, squeezing household incomes. There is nothing the BoE can do about this short term inflation pressure, but by demonstrating its inflation fighting intent, the Bank is hoping to keep future inflation expectations anchored through this period of high inflation.”

Steven Cameron, pensions director at Aegon, added: “The Bank of England has voted for another 0.25% interest rate hike to 0.5%, the second consecutive increase, in a bid to stem the crisis of rising prices which are squeezing household finances. Inflation is currently sitting at the highest rate for almost 3 decades and predicted to reach 7.25% this summer, partly fueled by the new energy price cap from April even allowing for the Chancellor’s targeted support package.

“Today’s rise, if passed on to cash savers, will offer them a small glimmer of hope after seeing interest rates barely scraping above zero of late. But to put this in perspective, an extra 0.25% interest on £10,000 savings will provide £25 a year, which won’t go very far towards the £693 energy bill increase an average household faces. Borrowers face an even gloomier future with further interest rate hikes likely this year making it increasingly more expensive to borrow money and pay off debt.

“Aegon research shows that over a quarter (27%) of adults are concerned about the impact rising interest rates will have on repaying short-term loans, and over a third (35%) are apprehensive about higher mortgage payments.”