The Bank of England has raised the base rate for the first time in more than a decade.
The Bank’s Monetary Policy Committee (MPC) voted by a majority of seven to two to increase the base rate to 0.5% from its historic low of 0.25%, bringing to an end months of speculation.
While this increase is the first since July 2007, it marks a return to levels in place from March 2009 to August last year.
The news will come as a blow for mortgage holders on variable rate deals, but will be welcomed by savers who have suffered years of poor returns on their cash.
What is the Bank of England base rate?
When the Bank of England lends money to commercial lenders, the banks must pay interest at an amount determined by the base rate.
The MPC meets each month to vote on whether the base rate should change. The decision is based on current economic circumstances, with the ultimate target of keeping inflation levels at 2%.
The base rate has been at a relatively low level since the financial crash – meaning it’s been cheaper to take out a loan or mortgage in the last nine years compared to previous decades.
But with inflation hitting 3% last month, the MPC has decided the time is right to increase the base rate and stave off any further price growth.