The Bank of England was expected to raise interest rates further as UK inflation continues to increase, approaching 10%.
This is the eighth hike in a row, and it is the highest level of interest rates since 2008.
The Monetary Policy Committee was highly divided in its conclusion, with five members voting to raise rates by 0.5 percentage points, three members voting for a more aggressive hike of 0.75 percentage points, up to 2.5%, and only one member voting to raise rates by 0.25 percentage points, to 2%.
However, it was united in its decision to reduce its purchases of UK government bonds by £80 billion over the following 12 months, in accordance with the approach outlined at the August meeting.
The MPC mentioned many macroeconomic headwinds facing the UK in its statement, including the "uncertain" outlook for UK retail energy prices.
It stated: "The mandate of the MPC is clear: the inflation target must be met at all times, underlining the priority of price stability in the UK monetary policy framework. The framework anticipates that inflation will deviate from the objective at times due to shocks and disturbances. The economy has been hit by a series of massive shocks.
"Monetary policy will ensure that, as the economy adjusts to these shocks, CPI inflation returns to the 2% target in the medium term. Monetary policy is also working to keep longer-term inflation expectations stable.
This rate decision comes just hours after the US Federal Reserve announced a 0.75% increase in interest rates in order to take a more hawkish stance on inflation.
The Fed raises interest rates as US inflation reaches a 14-year high.
MPC may feel as though its "hand was forced," according to Charlie Huggins, head of equities at Wealth Club.
He continued: "The new Conservative government is opening the budgetary taps, while the Federal Reserve is tightening the monetary screws on the other side of the Atlantic. Both of these factors have added to the pressure on the sterling, which is trading at its lowest level against the US dollar since 1985. Given the UK's reliance on imports, a weak pound merely fuels the fires of inflation."
Huggins added that the Bank of England was caught between a "rock and a hard place," as a softer stance would send the already weakened pound into a "tailspin" and cause inflation to "get even more out of control," whereas a tough stance would "easily choke the life out of the economy, without significantly easing the cost-of-living crisis."
"It's a terrible balancing act with no apparent good outcomes."
According to Thomas Wells, manager of the Sanlam Global Inflation-Linked Bond fund, a "soft landing appears overly optimistic presently."
He believes today's rate hike will not be enough to keep inflation under control.
Wells stated: "There is a lag between hiking central bank base rates and seeing the consequences in the broader economy. When the Bank of England believes inflation is under control, the picture will be one of slow growth, higher prices, lower real incomes, and increased unemployment."
