The Bank of England (BoE) has raised interest rates to 2.25% from 1.75%, the highest rate-level since the 2008 financial crisis.
The 0.5 percentage point change is the same rate increase as the bank's last hike, and is the seventh consecutive time the BoE has increased interest rates.
In addition, it represents the highest interest rate the UK has had since November 2008. In December 2008, the base rate was slashed from 3% to 2%.
The BoE has said it now expects a 0.1% fall in GDP over the current quarter, indicating that the country is already in a recession. The central bank had previously projected the economy would grow in the current financial quarter.
It comes after a reported 0.2% fall in GDP in the second quarter. A technical recession is when the economy shrinks for two quarters in a row.
The Bank’s Monetary Policy Committee (MPC) decided to raise rates in an effort to grapple big increases in the cost of living.
Mortgage borrowers, whose deal directly tracks the base rate, will see their payments increase by around £49 per month on average, adding up to nearly £600 annually, as a result of Thursday’s base rate hike.
The figures, from trade association UK Finance, also showed that a borrower sitting on their lender’s standard variable rate (SVR) will typically see a monthly increase of just under £31, adding up to around £370 per year.
Nearly four-fifths (78%) of residential mortgages outstanding are fixed rates, meaning these borrowers will not see the immediate impact of the BoE's latest base rate hike.
However, if they have been safely locked into their home loan for a while, they may find they get a bill shock when they do eventually re-mortgage.
Meanwhile, those with other types of debts will also feel the strain of rising rates.
Alice Haine, a personal finance analyst at Bestinvest said: “Consumers borrowed an additional £1.4 billion in credit in July, a further jump on the increase of £1.8 billion in June - with half of that sum on credit cards alone - highlighting just how difficult the current environment has become.
“Anyone with an existing fixed-rate personal loan or car loan does not need to panic yet as the terms of their loan have already been agreed, but new borrowers shopping around for credit may find the cost of debt higher."
Savers might see some improvements to deals during the coming weeks, but Ms Haine said that with high inflation, “the real return on any cash sitting in a savings account will be deeply negative - no matter how great the headline rate is”.
She added: “With the best easy access accounts climbing to 1.95% this week and the best fixed-term accounts hitting 3.82%, every penny in additional interest will be crucial in the fight against high inflation, which eats away at our spending power.
“But it might be worth waiting a little while to let the latest interest rate rises trickle through from lenders to savers.
In committee minutes, the MPC said the “tight labour with wage growth and domestic inflation” above targets called for a “forceful response”.
The decision to lift rates is a bid to keep inflation under control. It is the best tool the BoE has to steer inflation - currently at 9.9% - back to its 2% target.
In the September meeting, the MPC also said inflation is now not due to soar as high as previously expected, after the government announced plans to freeze energy prices for households earlier this month.
Consumer Price Index (CPI) inflation is set to peak at “just under 11%” in October, which would mark the highest inflation the UK has witnessed since January 1982.
Downing Street declined to comment on the decision by the BoE to raise the interest base rate from 1.75% to 2.25%.
A Number 10 spokeswoman said: “That is obviously a matter for the independent Bank of England."
Shadow Chancellor of the Exchequer Rachel Reeves MP said the rate rise shows a government which has "lost control of the economy".
“Their choice to put such huge unfunded and uncosted sums on borrowing will leave British taxpayers paying for years and are pushing up mortgage costs for everyone", she added.
“The Tories’ reckless approach is an immense risk to family finances.”
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