The Bank of England has increased interest rates by 0.25 percentage points to 0.5% – the first rate rise since 2007.
Millions of mortgage borrowers face an increase in their monthly repayments after the decision by the Bank’s Monetary Policy Committee (MPC).
The increase in the Bank rate was widely expected but marks a watershed moment after years of rock-bottom borrowing costs.
The Bank also signalled that it may increase borrowing costs further in the coming years, although investors only expect another two hikes in the next two years.
But currency markets were unimpressed by the announcement, sending the pound more than a cent lower against the dollar to around $1.31.
The MPC was split on the decision, with seven members voting for the increase but two – Sir Jon Cunliffe and Sir Dave Ramsden – voting to keep rates on hold.
Experts estimate eight million Britons have never seen an interest rate rise.
Policy makers cut the Bank rate to a historically low 0.5% in 2009 to try to help nurse the economy back to health at the height of the global financial crisis.
It was then cut again last summer in the aftermath of the Brexit vote, to 0.25%.
The decision to hike comes in the face of sluggish growth and warnings from some experts that it should be delayed to avoid further risking the economy.
The change in Bank rate is likely to be reflected in instant increases in floating rate mortgages and by more gradual changes of other rates, including unsecured borrowing and savings rates.
The Bank also said it expected inflation to peak at 3.2% in the coming month and for economic growth to remain subdued in the coming years.
It said stronger global growth, slightly more domestic price pressures and diminishing slack in the UK economy were the main reasons to lift rates.
Its position on Brexit has not changed: it believes it is already slowing the UK economy, and is taking into account a range of potential outcomes to the talks.
Its forecasts are based on the presumption that consumers believe the talks will go smoothly.