The rate is the highest since the height of the global financial crisis in October 2008.

The rise was expected by many experts and comes as the Bank continues to make curbing inflation a priority.

The latest rise is the 12th in a row.

The Bank's base rate was only 0.1% in March 2020.

The Bank of England’s 9-person Monetary Policy Committee (MPC) voted 7-2 to increase the rate to curb inflation.

The MPC said its inflation target of 2% would not change and further action to curb inflation would be taken if necessary.

The rises have been seen by many as a tough approach by the Bank to stop inflation spiralling out of control.

Mortgage and savings rates are expected to rise following the increase.

Some experts believe the rise in the base rate could boost annuity incomes further, despite rates already being 19% higher than this time last year.

Hargreaves Lansdown said a 65-year-old with a £100,000 pension could now generate an income of up to £6,782 per year.

That is a rise from £5,691 this time last year, almost a fifth, although the figure is slightly down from rates recorded after March’s mini-Budget.  

Alexandra Loydon, director, partner engagement & consultancy at wealth manager St James's Place, warned base rates could go still higher as the Bank struggles with inflation.

She said: "Since December 2021, we’ve now seen 12 consecutive rises in interest rates in an attempt to quell rising inflation, but it’s not certain that it’s reached its peak at 4.5%. With only a slight drop in inflation, the Bank of England is nowhere near its official target of 2%. Prices are currently rising at more than five times the target level of inflation, so I don’t think the BoE can afford not to raise in line with other Central Banks."

"In theory, higher interest rates put people off spending and encourage them to save instead. With less demand for goods and services, prices should fall and inflation should continue to go down. However, it’s proving very challenging. In fact, putting too much pressure on consumer and commercial borrowers could put the economy into further recession, without significantly easing the cost-of-living crisis. It’s a very fine balance. "

Kirsty Watson, COO of adviser at Abrdn, said the rate rises could provide an opportunity for advisers to emphasise the need for a long-term view to Financial Planning.

She said: “This is a perfect opportunity for advisers to have a broad conversation with clients about what the base rate is, how it works, and how it could change in the months to come. It’s also another chance to stress the importance of maintaining a long-term view when it comes to their savings and investment strategies.

“With a few exceptions, a single change in the base rate won’t immediately make a big difference for clients’ circumstances. But their gradual impact, and the direction of travel, matters. Advisers will be critical to helping ensure clients are positioned well in, and informed on, the big picture – and not make snap changes to strategy that might not be in their best interests, long-term.”