Interest rates have risen from 0.5% to 0.75%, the Bank of England has said.
Members of the bank’s monetary policy committee (MPC) voted eight to one in favour of increasing rates.
The MPC said the UK GDP was stronger than predicted in January, but stressed that growth in the UK economy is “likely to slow” due to pressures caused by Russia’s invasion of Ukraine.
It is the third increase over three consecutive months and will bring interest rates back in line with what they were pre-pandemic.
A further increase up to 1% has been predicted by May, KIS Finance said.
The news comes as the price cap for gas and electricity is set to rise dramatically next month as food prices are at their highest in almost a decade.
Soaring fuel prices due to the rise in cost of crude oil and the upcoming increase in National Insurance from April will see pressure on the public’s budgets stretched even further.
Following the announcement, the pound lost some of its significant gains against the US dollar, which was weakened by its own interest rate hike on Wednesday, falling by 0.35% to 1.187 against the dollar.
Ed Monk, associate director at Fidelity International, said: “Today’s rise in interest rates underlines how seriously policymakers are taking inflation, even if they stopped short of the half-point rise some had predicted.
“The monetary policy committee members will know that some of the most painful price rises being felt by households – such as those on energy, fuel and food – will not be brought under control by raising borrowing costs, but the fact they are acting anyway suggests they are worried about price rises feeding through to higher wages and becoming more ingrained.
“With growth still positive, the case for further tightening remains intact, but the Bank will be watching closely for signs that the cost-of-living squeeze is itself beginning to hurt demand.
“The Bank’s commentary around today’s decisions suggests ‘modest’ tightening as the year goes on – which might indicate it is willing to turn more dovish if growth slows.”
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