The Bank of England has intensified the squeeze on household finances with its first back-to-back interest rate rise since 2004 as the central bank forecast inflation will increase to 7.25 per cent in April.

By a majority of five to four, the Bank’s Monetary Policy Committee voted to increase the cost of borrowing on Thursday from 0.25 per cent to 0.5 per cent. The minority wanted an even larger increase to 0.75 per cent to get a grip on surging inflationary pressure.

The rise in official interest rates alongside the highest rate of inflation for more than 30 years would squeeze disposable household incomes by 2 per cent this year, with a further 0.5 per cent hit in 2023. That would be the biggest annual reduction in spending power since at least 1990, BoE officials said.