The central bank said it no longer expects a recession, but expects inflation to take longer to fall than it had hoped, mostly due to unexpectedly big and persistent rises in food prices.

The pound cut losses against the dollar, while UK blue-chip stocks eased, surrendering earlier gains.

BoE Governor Andrew Bailey and other policymakers will hold a press conference at 1130 GMT to discuss the decision.

MARKET REACTION:

STOCKS: FTSE 100 dropped 0.2%, having shown a 0.1% gain on the day prior to the decision.

FOREX: Sterling cuts some losses against the dollar, last down 0.1% at $1.261, having traded around $1.258 earlier on. It was up 0.3% against the euro at 86.68 pence, versus 86.87 pence shortly before the decision.

MONEY MARKETS: Gilt futures were up 0.3% on the day, while interest-rate futures showed traders believe UK rates will peak around 4.8% by November this year, reflecting no change on what had been priced in earlier in the day.

COMMENTS:

PETER SCHAFFRIK, GLOBAL MACRO STRATEGIST, RBC CAPITAL MARKETS, LONDON:

"The decision was as expected and 25 bps was priced in by markets."

"The change in the underlying assumptions were slightly on the hawkish side and they upgraded GDP and inflation expectations and also stressed tightness in the labour market."

JEREMY BATSTONE-CARR, EUROPEAN STRATEGIST, RAYMOND JAMES, FRANCE:

"The question we should be asking is why is the Bank continuing to raise rates when it has already forecast a mighty fall in inflation by early next year? The answer lies in the Bank's as yet unspoken desire to drive real short-term interest rates above zero for the first time since before the financial crisis of 2008/09. We may therefore not yet be at the end of the rate hiking cycle."

ALEX LIVINGSTONE, HEAD OF TRADING - FX & ETFS, TITAN ASSET MANAGEMENT, LONDON:

"The Bank of England decided to raise rates by 0.25% today, taking interest rates to 4.5%. As inflation remains in the double digits, and wages remain hot, the hike comes as little surprise. The widely expected rise in interest rates has recently allowed sterling/dollar to surpass 1.26 as yield differentials have narrowed."

DOUGLAS GRANT, GROUP CEO AT MANX FINANCIAL GROUP PLC, LONDON:

"Today's rise in interest rates is yet another blow to businesses struggling to manoeuvre as cash flows are squeezed. Stubbornly high inflation and flat-lining GDP data highlighted sluggishness that may be difficult to shake off. Indeed, coupled with the global banking sector showing signs of weakness, SMEs must take this as yet another reminder to review their existing lending structures and ensure they are prepared for further challenges."

(Reporting by EMEA Markets & Finance teams; Editing by Yoruk Baceli)