The Bank of England lifted its key benchmark rate by a quarter point to bring inflation sustainably to the target.
The Monetary Policy Committee, headed by Governor Mark Carney, unanimously decided to lift the benchmark rate by 25 basis points to 0.75 percent, the bank said in a statement on Thursday.
The bank had earlier hiked its rate by 25 basis points in November 2017, which was the first increase in a decade.
The MPC voted 9-0 to maintain the quantitative easing at GBP 435 billion.
Policymakers said the dip in UK output in the first quarter had been temporary, with momentum recovering in the second quarter. The labor market had continued to tighten and unit labor cost growth had firmed.
“Given these developments, a 0.25 percentage point increase in Bank Rate was warranted at this meeting to return inflation sustainably to the target,” the bank said.
All members agreed that any future increases in Bank Rate were likely to be at a gradual pace and to a limited extent.
The updated projections for inflation and activity set out in the August Inflation Report were broadly similar to its projections in May.
In the MPC’s central forecast, GDP is expected to grow by around 1.75 percent per year on average over the forecast period.
CPI inflation is forecast to remain slightly above 2 percent through most of the forecast period, reaching the target in the third year.