The Bank of England acts to curb inflation but what are the effects of an interest rate increase on day-to-day finances?
:: Who are the winners and losers?
First, this is not a big change. Interest rates are now back to their financial crisis level but the shift is likely to leave some worse off nonetheless, with borrowers set to feel the pinch most.
Savers, who have had the most to complain about in the low interest rate environment, will see their interest rates return to the admittedly poor but higher levels that were last seen before August 2016, when the Bank cut rates in reaction to the Brexit vote.
Video: Carney sees little rate rise strain
:: What will be the impact for my mortgage?
Consumer groups say almost half of the UK’s 9.1 million mortgage holders have never experienced the effects of a Bank of England rate rise, so this is important.
If you are in the majority of 4.4 million with a fixed-rate mortgage (currently in high demand), you have nothing to worry about – yet. Your rate is guaranteed for the life of your current deal so there will be no extra cost.
That said, lenders could now raise the cost of new fixed-rate mortgages to reflect the Bank of England’s decision – making remortgaging more expensive.
:: Interest rate: Latest updates
Image: Lenders will likely raise the cost of new fixed-rate mortgages
According to industry body UK Finance, there are 3.7 million households on variable-rate or tracker mortgages – so named because they track any movement in the Bank of England’s base rate of interest.
Those borrowers will see their payments rise.
How much depends on the terms of the deal, but a 0.25% increase in monthly repayments over a year would represent an average increase of up to £200, according to Moneywise.
:: Why will savers benefit?
Interest on most savings products since the financial crisis has been woeful, with investors turning to more risky alternatives such as the stock market and other investment products for meaningful rates of return.
Here’s why: average interest rates on easy access accounts have fallen below 0.5% this year so there will be some relief from a rate rise for a change.
Banks and other providers are expected to pass the 0.25% interest rate on in full though individuals with fixed rate savings are likely to be disappointed.
:: The effect on my credit card balance?
Image: It is the first rate increase in 10 years
This is less clear.
The annual rate of growth in unsecured consumer credit is currently 9.9% with £200bn outstanding – a level last seen in 2008.
The amount held on credit cards is included in this sum and the good news for borrowers is that card providers are currently under regulatory pressure to prevent a credit bubble and surge in defaults.
It means that operators are less likely to pass on the rate rise by increasing APRs for fear of a backlash but never say never.
:: Will this bring down prices at the shops?
While the Bank of England has raised interest rates to tackle rising inflation, this move will not be reflected in everyday prices for some time to come.
It took six months for the effects of the Brexit-hit pound to raise prices as imports became more expensive.
Image: The move will not be reflected in prices for some time to come
Retailers fear rate rises as higher mortgage and other bills for consumers mean they will have less money to spend.
:: Are there likely to be further increases in interest rates?
This is the big question – but some think a series of rises next year is most unlikely.
That is because the Bank is forecasting inflation to fall back below 3% and it will be mindful that rate rises risk choking weak growth in an economy already beset with Brexit-related jitters, despite strong employment levels.
Source: Sky News