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He said: "We question whether the risks and uncertainties justify aggressive and persistent interest rate increases at the present time."

In the markets, shares dipped in the wake of the Bank's announcement, while the pound rallied, climbing back to levels close to this week's 26-year highs of almost $2.02.

The Bank’s tough medicine comes as the MPC pursues a determined effort to ensure that inflation meets its 2 per cent target on the consumer prices index in the face of last year’s jump in the cost of fuel, which is still putting some upward pressure on prices.

But higher rates will offer some good news for savers if high street banks respond by boosting returns on deposits.

Inflation on the Bank’s benchmark consumer prices index has retreated sharply since it hit a peak of 3.1 per cent in March, compelling Mr King to write an explanatory letter to the Chancellor.

By May inflation was back down to 2.5 per cent, and it is expected to fall farther in coming months, reaching levels close to the 2 per cent target in the rest of the year as the impact of last year’s jump in energy costs fades and drops out of the calculations.

In its statement today the MPC acknowledged that inflation had fallen and was on course to drop back to the 2 per cent target.

But it sounded a warning that a risk remained of higher inflation in future.

The committee noted that the economy’s growth was “firm”, and highlighted both rapid credit growth and pricing pressures as businesses responded to a lack of spare capacity by attempting to raise charges to customers.

The Bank's statement gave little clue to whether rates were likely to have to rise further in coming months.

Despite the Bank’s four previous increases in interest rates, the economy has continued to motor ahead, with business surveys in the past few days suggesting that growth in the past quarter was probably little changed from the buoyant 0.7 per cent pace notched up in the first three months of the year.

That was close to the so-called trend rate, or speed limit, at which the economy can expand without sparking inflationary pressures.

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