The Bank of England has raised interest rates from 0.25% to 0.5% after inflation jumped to its highest level in ten years.
It is the second time in more than three years that the central bank has hiked the interest rate, which has been at a record low for much of the pandemic.
The Bank's Monetary Policy Committee this afternoon voted by five votes to four in favour of increasing interest rate, also known as 'base rate' or 'bank rate'.
The Bank of England has been under pressure to hike this rate to help cool inflation amid the cost of living crisis in the UK.
Consumer Price Index (CPI) inflation is currently 5.4% - its highest level in a decade and far above the Bank's target of 2%.
The Bank said it may have to raise base rate even further to bring inflation down.
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A Bank statement said: "We have raised the official interest rate we set, known as bank rate, to 0.5% to support inflation returning to our 2% target.
"We may need to raise interest rates somewhat further. Our job is to ensure that inflation returns to our target in a sustainable way."
The Bank last raised interest rate in December 2021 , when the level reached 0.25%.
The last time base rate was more than 0.5% was back in March 2020, when the Bank cut it from 0.75% down to 0.25%.
Previously they were 0.1% after being cut twice in March 2020.
The Bank of England interest rate is factored into the level of interest that banks and other lenders charge borrowers and pay savers.
So the decision to hike interest rates effectively means that borrowing money becomes more expensive.
Millions of people with mortgages and other debts will see their payments increase as a result.
But rate rises should be good news for savers - as you should notice interest rates on saving products creep up over the next few weeks.
Paul Allison, head of equity research at investing firm Freetrade, said: "The Bank of England decided that the UK economy is healthy enough for it to continue its rate hiking path, and imposed its second increase in as many months to 0.5%.
The let-up in Omicron infections has opened the door just wide enough for them to hurry out a couple of rate increases before we get to see just how long inflation, once billed as 'transitory', will hang around."
Why do interest rates change?
The Bank of England sets the base rate in the United Kingdom every month.
Base rate is basically a 'lever' that the Bank can pull to help control the economy.
Rising base rate means it's more expensive to borrow, so consumers and businesses save instead - meaning spending drops and inflation does too.
Lowering base rate does the opposite, encouraging everyone to spend and not save, which means higher inflation.
The Bank can also vote to keep base rate as it is and not change it.
It's been doing this independently from the government since May 1997 – so more than 20 years.
But it is still guided by the government – who sets it targets to achieve.
