The central bank had previously projected the economy would grow in the current financial quarter, but said it now believes gross domestic product (GDP) will fall by 0.1 per cent. This comes after a reported 0.2 per cent fall in GDP in the second quarter, meaning that the economy is now in recession. A recession is when GDP shrinks for two consecutive quarters.

The Bank’s Monetary Policy Committee (MPC) decided to raise rates to 2.25 per cent – their highest since November 2008 – from 1.75 per cent, in an effort to grapple big increases in the cost of living.

In committee minutes, it said the “tight labour with wage growth and domestic inflation” above targets called for a “forceful response”.

Nevertheless, the hike was below the expectations of the financial markets, who had predicted a 0.75 percentage point hike in line with the rate increase announced by US Federal Reserve on Wednesday.

The MPC came to the decision after five members of the nine-strong...

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