The Bank of England's (BoE) Monetary Policy Committee (MPC) has unanimously voted to increase interest rates by 25 basis points to 0.75%, the highest level in almost a decade.
Despite the weaker-than-anticipated CPI inflation at 2.4% in June, the MPC minutes said inflation would remain above target for the forecast period.
The minutes said: "The MPC continues to recognise that the economic outlook could be influenced significantly by the response of households, businesses and financial markets to developments related to the process of EU withdrawal."
BoE chief economist Andy Haldane, 'perma-hawk' Ian McCafferty and Michael Saunders were joined by the other six MPC members in voting for a rate rise.
On the news, sterling, which was trading at a two-week low against the US dollar at $1.308, fell to $1.307 while it was trading level against the euro at €1.126. The FTSE 100 was down 1.2% to 7,563 shortly after the announcement.
Prior to the meeting, markets were pricing in a 91% chance of a rate rise.
There has been increased uncertainty surrounding the Brexit negotiations with the chances of a 'no deal' scenario rising after the European Union rejected Prime Minister Theresa May's financial services proposal.
Hargreaves Lansdown senior economist Ben Brettell said: "The reliable boyfriend delivers on rate expectations.
"The BoE had backed itself into a corner this month, with markets seeing a rate rise as a dead cert.
"So any big market reaction was reserved for a no-change decision - if rates had been left on hold, sterling would almost certainly have tanked."
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