The Bank of England voted to take firm action in the battle to control inflation by hiking the base rate by 0.5 percentage points, to 5%.

Two members of the nine-strong monetary policy committee preferred to maintain Bank Rate at 4.5%.

The bank said the committee continues to monitor closely the impact of the significant increases in Bank Rate so far.

“As set out in the May Report, the greater share of fixed-rate mortgages means that the full impact of the increase in Bank Rate to date will not be felt for some time”.

The bank noted that business surveys continue to suggest underlying quarterly GDP growth of around 0.25% during the middle of this year.

Indicators of household spending have tended to strengthen “a little while” and the unemployment rate has been flat at 3.8%, in line with the May Report. The vacancies-to-unemployment ratio has fallen further but remains significantly elevated.

Annual growth in private sector regular average weekly earnings increased to 7.6% in the three months to April, 0.5 percentage points above the expectation at the time of the May Report.

Three-month on three-month growth in this measure of pay has also picked up. Indications of future pay growth from the KPMG/REC survey and the Bank’s Agents suggest that AWE growth will ease over the rest of this year.

Chancellor of the Exchequer Jeremy Hunt said: “High inflation is a destabilising force eating into pay cheques and slowing growth. Core inflation is higher in 14 EU countries and interest rates are rising around the world, but the lesson from other countries is that if you stick to your guns, you bring inflation down.

“Our resolve to do this is watertight because it is the only long-term way to relieve pressure on families with mortgages. If we don’t act now, it will be worse later”.