The UK inflation rate will rise by half a percentage point to 2.25 percent in response to out-of-control inflation.
The Bank of England's nine-member Monetary Policy Committee announced the rise following a three-way split vote on Thursday.
It follows a previous half-point hike decided at the committee's last meeting in August, at that point the biggest single hike since 1995.
Lending rate increases are the bank's customary response to inflation, with the Consumer Price Index now running at around 10 percent in the UK.
But the response may prove counterproductive, as the bank warned that the British economy could soon enter a state of 'technical' recession — defined as two consecutive quarters of contraction.
Its economists had predicted 0.4 percent growth for the quarter from July to September — but said business closures for the national holiday called on the day of Queen Elizabeth II's funeral had wiped that out.
The committee offered a ray of hope however, predicting that the government's energy bill support packages would limit the rise in inflation next moth to 11 percent.
Western sanctions on Russia over its military operation in the Ukraine, including the UK's ban on fossil fuel imports, have magnified pre-existing energy crisis with a knock-on effect on prices of other goods and services.
Chancellor of the Exchequer Kwasi Kwarteng is expected to announce further measures in response to the energy crisis in his mini-budget on Friday.
The committee, which includes the central bank's governor, three deputy governors and four external members, meets every two months for three-and-a-half days to decide whether to set the lending rate to commercial banks.
Former Labour Party Chancellor of the Exchequer Gordon Brown ceded the power to set interest rates from the elected government to the Bank of England in 1997.
The cost-of-living crisis has sparked a series of strikes across multiple sectors as pay offers fall far below inflation.