The Bank of England raised interest rates to 5.25% from previous 5%, signaling a prolonged period of tighter borrowing conditions.
The key rate was increased by a quarter point, a smaller hike than expected. The bank warned that further action may be needed if inflation persists and that their stance will remain sufficiently restrictive for a long time.
The bank also revised its growth and inflation forecasts, painting a bleak picture for the next general election.
There is growing division within the Monetary Policy Committee on how to respond to rising wages and prices alongside weakening economic activity.
The forecasts suggest the UK economy will avoid a recession, but there is still a significant risk of contraction.
The committee expects the economy to stagnate until 2025.