The Bank rate, set by the Monetary Policy Committee, has gone up to 5% from 4.5%. The change means further pain for some homeowners, but it could benefit savers.

The Bank rate is at its highest level for 15 years, as the Bank tries to slow the rise in the cost of living. But the rate seems likely to go higher. Bank governor Andrew Bailey has said that if prices continue to rise rapidly then further rate increases will be needed. The financial markets expect rates to peak at about 6% early next year.

The theory is that raising interest rates makes it more expensive to borrow money, meaning people have less to spend, and so bringing down demand and slowing price rises. There has been a series of Bank rate increases since December 2021 attempting to control inflation - which charts rising prices.

The inflation rate target is 2%. But, so far, the impact has been limited and is likely to take more time to feed through. Prices rose by 8.7% in the year to May, according to the Office for National Statistics (ONS). This is the same as the previous month but down from its peak of 11.1%.

Just under a third of households have a mortgage, according to the government's English Housing Survey. When interest rates rise, more than 1.4 million people on tracker and standard variable rate (SVR) deals usually see an immediate increase in their monthly payments. The rise from 4.5% to 5% means those on a typical tracker mortgage will pay about £47 more a month. Those on SVR mortgages face a £30 jump.

Since December 2021, that's an increase in monthly repayments of £465 on a tracker and £297 on an SVR. Three-quarters of mortgage customers hold a fixed-rate mortgage. Their monthly payments may not change immediately, but house buyers - or anyone seeking to remortgage, estimated to be 1.8 million people this year - will have to pay a lot more now than if they had taken out the same mortgage a year or more ago.

Bank of England interest rates also influence the amount charged on things such as credit cards, bank loans and car loans. Even ahead of this decision, the average annual interest rate in April was 21.86% on bank overdrafts and 20.13% on credit cards. Lenders could decide to put prices up further, if they expect higher interest rates in the future.

Individual banks and building societies usually pass on interest rate rises to customers. The deals being offered now are better than anything seen for years. Analysts say that people should shop around for a better savings rate, with many paid little or nothing in interest in many accounts. Major banks have been under pressure from MPs to pass on rate rises.

But although this means savers get a higher return on their money, interest rates are not keeping up with rising prices. This means the value of cash savings - its buying power - is falling in real terms.

The Bank has been putting rates up to combat rising prices - known as inflation. Prices have been going up quickly worldwide, as Covid restrictions eased and consumers spent more. Many firms experienced problems getting enough goods to sell. Oil and gas costs were higher than they had been - a problem made worse by Russia's invasion of Ukraine. Although many elements of inflation are global, there are concerns that some are domestic, such as rising wages.

Since the global financial crisis of 2008, UK interest rates have been at historically low levels. Rates were at 0.1% in 2021.

The UK is affected by prices rising across the globe. So there is a limit as to how effective UK interest rate rises will be. However, other countries are taking a similar approach, and have also been raising interest rates.

The US central bank has announced big rate rises which have taken its key rate to levels not seen for 16 years, although it held them at its last meeting.

The European Central Bank recently raised its main interest rate in Europe by a quarter of a percentage point, to 4%.Other central banks around the world have also raised rates, as inflation continues to cause problems in a host of major economies.