The Bank’s decision was greeted with a chorus of disapproval and protest from the City’s business leaders last night.

Kevin Hawkins, the director-general of the British Retail Consortium, said: “The Bank has overreacted. This is an unnecessary blow . . . another rise will hit consumers hard.”

EEF, the manufacturers’ group, said that the Bank could have damaged its reputation for stability by raising rates so soon. Martin Temple, its director-general, said: “We are surprised and disappointed by today’s decision, which is premature and risks bringing the economy to a sharper halt than is necessary.”

The CBI described the rate increase as disappointing and said that it was doubtful whether it would have its desired effect.

However, the Institute of Directors called the decision “tough but wise”. Graeme Leach, its chief economist, said: “The MPC needed to stamp down on inflation, given the upside risk at present.”

The unions expressed their anger. Adam Lent, the head of economics at the TUC, said: “Today’s decision smacks of panic rather than considered judgment.”

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