The bank’s Monetary Policy Committee (MPC) by a majority of 6-3, voted to increase the bank rate by 0.25 percentage points.

Those members in the minority preferred to increase Bank Rate by 0.5 percentage points, to 1.5%.

This increase is the fifth successive rise and has taken the bank rate to its highest level since January 2009.

The BoE said its MPC will take the actions necessary to return inflation to the 2% target sustainably in the medium term.

Commenting on the raise, Martin Beck, chief economic advisor to the EY ITEM Club, said: “The minutes were low on information about the committee’s views on the likely path of interest rates over the coming year, in notable contrast to the Fed’s forward guidance. This makes it hard to get a good steer on the MPC’s reaction function.

“But the balance of the minutes erred on the side of hawkishness. Though the Bank now expects GDP to fall in Q2, the MPC did not seem overly concerned about this development. It was clear that the MPC continued to view the labour market as being very tight and that it feared second round effects on inflation from higher wage settlements. And it indicated that inflation was now likely to be much higher than the May forecast around the turn of this year, given Ofgem’s revelation that the Energy Price Cap was on track to rise by more than 40% in October.

“On balance, it looks like there is still some more monetary tightening to come, and the EY ITEM Club expects a further 25bps increase in Bank Rate in August. And with the MPC not commenting on market expectations, despite the marked increase in recent weeks, the risks appear to be skewed towards further increases after that. That said, it looks very unlikely that Bank Rate will get close to the 2.75% level that market pricing implied for end-2022 prior to today’s announcement.”

Kevin Brown, savings specialist at Scottish Friendly, comments: “By raising interest rates in quick succession the Monetary Policy Committee is desperately trying to curb inflation.

“It may be that the speed at which prices have risen this year has been underestimated. Although the central bank finds itself in a difficult position with factors at play that are outside of its control, we cannot forget that consumers are stuck between a rock and a hard place.

“Living costs continue to rise and could spike sharply again in October when the new energy price cap comes into effect, and with interest rates going up many UK households are also facing higher borrowing costs.

“Savers should benefit from rising interest rates, but in a cost-of-living crisis many households will be more concerned with their bills going up, rather than the possibility of earning a few extra pounds on their savings.”

Tina McKenzie, Federation of Small Businesses (FSB) policy and advocacy chair, said: ““This latest rise illustrates something every small business owner will be acutely aware of: rising costs are running out of control, and the operating environment for small firms is tougher than it has been for some time.

“The increase will make access to finance for small firms more expensive. This makes announcing a successor to the Recovery Loans Scheme, which ends later this month, even more important.”

She added: “The Bank of England recently used the word stagflation in connection to the current economic crisis, which is noteworthy and deeply worrying. Low growth coupled with high inflation will be a death knell to countless small businesses.

“This is a scary moment. It’s hard to overstate how devastating the current spiralling inflation levels are, for businesses and consumers alike, and the longer the situation goes on, the more the damage compounds.

“The Bank is required to try and rein inflation in, although there are question marks over how much it can actually do, given that many of the factors behind inflation, from war in Ukraine to oil prices, are outside its control.

“Anything which adds to the margin pressure small firms and sole traders are facing – such as an increase in debt costs as the base rate rises – is hard to swallow. Small businesses are bearing the brunt of this crisis, with cash reserves eroded throughout the pandemic and with late payments intensifying.”

She concluded: “Looking ahead, what businesses want is a reduction in uncertainty, and a sense that those in charge have plans to help the economy grow while understanding what businesses need in order to thrive. The levelling up agenda is great in theory, but we’re still waiting for real progress to be made. The long-delayed Enterprise Strategy should be brought forward, and late payments – which destroy thousands of otherwise-viable businesses every year – must be tackled through recently-announced audit reforms, with corporate boards made directly responsible for payment practices.”