The Bank of England has raised interest rates from 0.75% to 1% to help beat runaway inflation eroding consumers' cash.
The increase means the rate is now at its highest level in 13 years, and means millions of people with mortgages and other debts will see their payments increase as a result.
Interest rate, also known as base rate or bank rate, is set by the Bank of England and factored in to what financial firms charge or pay customers.
Today the Bank of England's monetary policy committee voted to increase base rate to 1%.
A Bank of England spokesperson said: "We expect inflation to rise further to around 10% this year.
"Prices are likely to rise faster than income for many people. That means that people will be able to buy less with their money."
The Bank said the cost of energy bills and food are the main things pushing up inflation.
Base rate was last at 1% back in February 2009, but the Bank of England cut it to 0.5% in March 2009 and it has stayed below 1% ever since.
But there have been four base rate hikes in the last six months.
See how all of today's changes affect you, here.
In December 2021 the rate rose from 0.10% to 0.25%, then to 0.5% in February 2022 and 0.75% in March, before the rise to 1% today.
The Bank of England is raising base rate to help tackle the issue of rising inflation - the increase in the cost of goods and services.
The rate of inflation increased to 7% in March from 6.2% in February, the Office for National Statistics said in its latest figures last month. Today, the Bank of England warned it could be 10% by Christmas.
But while the Bank of England is trying to offset these rising costs, in the short term it means some Britons will be paying more.
This is because mortgage firms and lenders normally pass on base rate changes in full.
A base rate rise of 0.25 percentage points might seem small, but it means paying an extra £175 a year on the average mortgage.
People with fixed-rate mortgages will be protected against this increase until their mortgage term ends.
But it will kick in almost automatically for those on variable-rate or tracker mortgages, which as the name suggest 'track' base rate.
Lenders will also use the base rate increase to increase what they charge people to borrow.
But base rate rises are good news for savers, who should get more interest on savings deals as a result.
Gemma Boothroyd, of investment firm Freetrade, said: "Not all Britons will be impacted the same.
"The rate rise could ultimately ease inflationary pressures, or at least that’s the Bank of England’s goal. So theoretically, this could soothe some cost of living pressures we’re seeing across the board from energy price hikes to increasing costs of food.
"But it could also mean homeowners with variable mortgages are forking out more every month.
"And if the rate rise doesn’t actually lighten inflation as is hoped, then it’s an even bigger hit to those Britons’ wallets."
Laura Suter, at AJ Bell, added: “The move by the Bank’s ratesetters to increase rates lumps even more pain on households struggling with the cost of living crisis.
“Last time rates were at 1% they only sat there for less than a month, before being cut again to 0.5%. Anyone with borrowing will fear that the same will be true this time around, and that the Bank will increase rates again to 1.25% at the next meeting in June."
Unions called for an emergency Budget to help households amid soaring inflation.
TUC head of economics Kate Bell said: “This is the wrong time for a rate rise. The economy is already slowing down and the rise will further harm growth. And it won’t have much impact on supply side problems like rising energy costs."
Rachel Reeves MP, Labour’s Shadow Chancellor of the Exchequer, added: "Rising interest rates and further troubling growth downgrades underline not only how the Tories are failing to tackle the cost of living crisis, but also how poorly they're managing our economy.
“This will seriously worry families across the country already dealing with soaring prices and bills.
"Not only are Ministers shrugging their shoulders at the spiralling cost of living crisis, they’ve made it worse by hitting working people and businesses with fifteen Tory tax rises that will further stifle our economic growth.
“They are out of ideas and out of touch."
“With a one-off windfall tax on oil and gas producer profits we can cut household bills by up to £600 and support businesses through the cost of living storm.”
Why do interest rates change?
The Bank of England sets the base rate in the United Kingdom every month.
Base rate is basically a financial '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.
But it is still guided by the government, which sets it targets to achieve.
