The Bank of England (BoE) has raised the UK interest rates by 0.25 basis points to 4.25% to combat double-digit inflation.
This is the 11th time in a row, in less than 18 months, that the central bank has increased rates, making borrowing costs higher despite the cost-of-living crisis that has hit UK households.
It lifts UK interest rates to their highest since October 2008, early in the financial crisis, when Bank Rate was 4.5%.
It also comes after inflation took a surprise leap to 10.4% in February. Inflation hit a 41-year high at 11.1% in October.
The monetary policy committee voted 7-2 in favour of a 25bps increase, with two members preferring to maintain at 4%.
The recent turmoil in the banking sector, which began with collapse of Silicon Valley Bank (SVB) nearly a fortnight ago, has reminded central banks that things can break when monetary policy is rapidly tightened.
Although contagion risks from the tech bank crisis and Credit Suisse look to have receded for the time being, the BoE will need to tread carefully if it decides to further tighten monetary policy from here.
The Bank recently acknowledged that ‘more sharp moves in asset prices could expose weakness in parts of Britain’s financial system’ in a letter to lawmakers."
This increase will have an immediate impact on some borrowers and savers. High-street banks use the Bank's base rate to work out the interest rates it offers to customers.
When interest rates rise, more than 1.4 million people on tracker and variable rate deals usually see an immediate increase in their monthly payments.
The BoE has raised its outlook for the economy in the near term, now expecting the economy to grow in second quarter.
The US Federal Reserve raised its main rate by a quarter of a percentage point on Wednesday but indicated it would stop further increases.
The European Central Bank also raised its three main interest rates by 50 basis points last week.