Decision makers on the Bank's Monetary Policy Committee (MPC) opted to hike the base rate from 3.5% to 4%, to help bring down double-digit inflation.
The Bank said that the UK is still headed for a recession, but stressed that the economic downturn could be shallower and shorter than previously expected.
Peak-to-trough gross domestic product (GDP) is set to shrink by 1%, from around 3% in an earlier forecast.
This is because wholesale energy prices have fallen significantly since the MPC produced its last forecast, in November, and inflation has begun to fall from its peak last year.
The UK will suffer a recession of five consecutive quarters, starting in the first three months of 2023.
But the decline will be much softer than in previous recessions, such as during the 2008 financial crisis.
Governor of the Bank of England Andrew Bailey, has said that it is "too soon" to declare victory over inflation.
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