The Bank of England has raised interest rates by 0.5 percentage points to 2.25 per cent, its highest level since 2008.
The 0.5 percentage point rise was voted for by five members of the monetary policy committee, with three members voting for a 0.75 percentage point raise, and one for a 0.25 percentage point raise.
The MPC noted that wholesale gas prices have been highly volatile since its last meeting in August, alongside a material depreciation in sterling.
However, it said uncertainty around the outlook for UK retail energy prices has fallen after the government's announcement of a two-year cap on energy prices.
"The [price] guarantee is likely to limit significantly further increases in CPI inflation, and reduce its volatility," the MPC said in a statement today (September 22).
The bank also said there is indication that the level of consumer spending "is likely to have peaked in this quarter", with some indications that the demand for labour is weakening.
This is the seventh time the bank has raised interest rates, as a combination of pent-up demand post the pandemic, supply chain issues and the war in Ukraine has led to spiralling inflation.
The rate at which prices have risen dropped slightly last month, hitting 9.9 per cent in the year to August compared with 10.1 per cent the month before, according to the Office for National Statistics.
However, it has still overshot the BoE’s target of 2 per cent each month since May last year.
The central bank has clashed with new prime minister Liz Truss is recent weeks, after she said she would "look again" at the central bank's mandate to "make sure it is tough enough on inflation".
In a Treasury committee evidence session in September, Andrew Bailey was asked by committee member Angela Eagle whether the BoE’s remit is outdated.
“I think the inflation target, and the nominal anchor we get from that, is very important and has proved to be very successful over the years,” Bailey said.
Bank of America warned recently that interest rates in the UK will hit 4 per cent in August 2023 if Liz Truss's government cuts tax and increases spending on defence.