The warning comes as the Bank raises interest rates to 2.25% – the highest level for 14 years.
UK interest rates have been raised to 2.25% from 1.75%, marking their highest level in 14 years.
It is the seventh time in a row that the Bank of England has raised rates as it battles to stem soaring prices.
The increase takes borrowing costs to their highest since 2008, when the UK banking system faced collapse.
Interest rates have been rising since last December as the rise in the cost of living has accelerated.
Inflation – the pace at which prices rise – is currently at its highest rate for nearly 40 years.
At 9.9%, it remains five times higher than the Bank of England’s target of 2%.
Inflation is also widely predicted to head higher in October despite government intervention to limit the impact of gas and electricity costs on households.
Raising interest rates makes it more expensive to borrow which should, theoretically, encourage people to borrow less and spend less. It should also spur people to save more.
However, there is also a risk that increasing the rate could hit the UK’s economic growth.
Although interest rates are now at a 14-year high, they are still comparatively low by historical standards.
Following the financial crisis, borrowing costs have stayed at, or close to, record lows after the Bank of England intervened with cuts following the UK’s vote to leave the European Union in 2016 as well as during the Covid pandemic.