The Bank of England (BoE) has raised the base interest rate from 2.25% to 3% in a bid to curb inflation.
The 0.75 percentage point rise is the largest hike since 1989, and the eighth consecutive increase since December 2021.
Updated projections from the Bank's Monetary Policy Committee (MPC) indicated that the UK would face a "very challenging" two-year recession, with unemployment potentially doubling by 2025.
With inflation climbing at its fastest rate in 40 years, the BoE hopes that raising interest rates will go some way to lower the rate of inflation and counter the effects of the cost of living crisis.
While this decision will benefit savers, people with mortgages, credit card debt and bank loans are likely to face higher bills as a result of higher interest rates.
Chancellor of the Exchequer Jeremy Hunt acknowledged how families and businesses would be affected by the higher rates, but pledged to "restore stability" to the UK economy and deliver long-term growth.
The BoE said:
"The Committee continues to judge that, if the outlook suggests more persistent inflationary pressures, it will respond forcefully, as necessary.
"The MPC will take the actions necessary to return inflation to the 2% target sustainably in the medium term, in line with its remit."
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