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The increase to 0.25% from 0.1% followed data this week that showed prices climbing at the fastest pace for 10 years.

The Bank’s action is set to increase the mortgage costs of some homeowners.

Bank governor Andrew Bailey said it needed to tackle strong inflationary pressures building up in the economy.

Inflation is now running at 5.1%, the highest in a decade, and he expects it to rise further early next year.

A rise in wholesale gas prices is still a big factor driving inflation, and that is continuing to push up domestic energy bills.

But one business group said the interest rate rise would do little to stop prices going up, since costs were being pushed higher by global factors largely outside the Bank’s control.

What does this mean for borrowers and savers?
The decision by the Bank of England will add just over £15 to the typical monthly repayment for a tracker mortgage customer.

A standard variable rate mortgage-holder is likely to pay nearly £10 extra a month.

Nearly two million people in the UK have one of these two types of mortgage.

While savers may welcome news of higher rates, analysts warn there is no guarantee the higher Bank rate will lead to better returns on savings.

Even if savings rates increase slightly, returns are still well below the rate of inflation.

Why is this happening now?

Yet on Thursday, it said the prices of global assets, such as stocks and bonds, had largely recovered after an initial fall triggered by news of the new variant.

“Consumer price inflation in advanced economies has risen by more than expected,” the Bank said.

“But it is not at all clear if the impact [on the economy] could cause inflation to come down, or even go up,” he said.

What is the Bank’s strategy?

It goes to show that the arguments have been finely balanced. The other development has been that inflation has hit even harder and even faster than expected. Six per cent is now the expected peak in the spring, which will represent the highest rate of inflation on the targeted CPI measure for 30 years. It is treble the Bank of England’s target.

Was it a close call?
Not at all. The Bank’s Monetary Policy Committee (MPC) voted 8-1 in favour of the increase. The dissenting MPC member, Silvana Tenreyro, voted to keep rates as they were.

It was the second month in a row that Bank policymakers had surprised the markets.

Economists had expected a rate rise at the MPC’s last meeting in November, but policymakers voted to hold fire.

“While today’s rate increase may have little effect on most firms, many will view this as the first step in a longer policy movement – not as a partial reversal of last year’s cut.”

He added that the current inflationary spike was mostly driven by global factors, so higher interest rates would do little to curb further increases in inflation.

Instead, the government needed to find practical solutions to the UK’s supply chain problems and labour shortages, he said.

Paul Dales, chief UK economist at Capital Economics, said the move suggested that the Bank had become “a bit more hawkish” and might now think rates need to rise further than before.

“The MPC once again said that a ‘modest tightening’ of monetary policy is likely to be necessary, so this is not looking like a case of one and done,” he added.

“We still think that weaker economic growth and a faster fall in inflation will mean that interest rates won’t rise to 1% by the end of next year, but it’s just become more likely that they rise above our 0.5% forecast.”

The MPC also voted unanimously to maintain the Bank’s asset purchase scheme at £875bn.

The last time the Bank raised interest rates was in August 2018, when they reached 0.75%.