The Bank of England has increased interest rates for the first time in more than a decade.

As widely expected, the Bank has upped its benchmark base rate from 0.25% to 0.5% – the first time it has hiked rates since July 2007.

The Bank said its nine rate-setters voted seven to two in favour of the move. 

The decision comes just over a year after the Bank slashed base rates to a record low of 0.25% in the aftermath of the shock Brexit vote last June.

The higher rates will impact 3.7 million households across the UK who are on a standard variable rate mortgage.

But 45 million savers will enjoy higher returns from bank accounts that pay variable interest rates.

A number of business groups had previously warned the Bank of England against raising rates, claiming they would put a strain on homeowners and firms who are already feeling the squeeze.

According to the Office for National Statistics, gross domestic product (GDP) increased 0.4% in the three months to September – a quicker rate than the 0.3% forecast by the Bank.

The figures heightened expectations that the Bank would raise rates in order to keep a lid on inflation, which hit a five-year high of 3% in September.

Speaking ahead of the decision this morning, Morrisons boss David Potts shrugged off the impact a rates rise could have on consumer spending in the grocery sector because they were already “managing their cashflow”.

However, there are concerns that shoppers will scrap or delay big-ticket purchases such as furniture or electrical goods as they face into higher mortgage payments or opt to save more of their incomes to benefit from healthier interest rates.