Bank of England chiefs have raised interest rates from 0.1% to 0.25% after inflation jumped to its highest level in ten years.
It marks the first time in more than three years that the central bank has hiked interest rates, which had previously been at a record low.
The Monetary Policy Committee this afternoon voted 8-1 in favour of increasing the base rate to 0.25%.
The BoE had been under pressure to hike rates to help cool inflation amid the cost of living crisis in the UK.
Consumer Price Index (CPI) inflation yesterday hit 5.1% - its highest level in a decade and above the BoE target of 2%.
In the minutes of the decision, the Bank warned that inflation could now peak at 6% in April - it also downgraded growth outlook to 0.6% in the fourth quarter from a previous forecast of 1%.
Despite rising inflation, markets had predicted that interest rates would be held due to surging cases of the Omicron variant and fears of another economic slowdown.
The Bank last raised interest rates in August 2018, when they reached 0.75% - they were cut twice in March 2020 to the 0.1% figure seen before today.
The BoE base rate sets the level of interest that banks and other lenders charge borrowers.
So the decision to hike its interest rates effectively means that borrowing money - so when rates rise, borrowing 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.
We've got a full guide on what the interest rate news means for you and your money here.
The BoE said in a statement: "Most members of the Committee judged that an immediate, small increase in Bank Rate was warranted.
"The decision at this meeting was finely balanced because of the uncertainty around Covid developments.
"There was some value in waiting for further information on the degree to which Omicron was likely to escape the protection of current vaccines and on the initial economic effects of this new wave.
"There was, however, also a strong case for tightening monetary policy now, given the strength of current underlying inflationary pressures and in order to maintain price stability in the medium term."
Rachel Winter, investment director at investment firm Killik & Co. said "Despite today’s rise, interest rates remain at relatively low levels.
"Savers should therefore continue to look for alternative ways to earn returns on their savings. With inflation so high, stashing cash or keeping it idle in banks should be avoided.
"Those looking to make their money work harder should consider investing as the stock market has historically delivered above-inflation returns over long time periods.”
