The Bank of England today voted to raise interest rates to their highest level since 2008. This is also the single-biggest rise since 1995.

The nine members of the Monetary Policy Committee (MPC) voted eight to one in favour of a rise to 1.75%.

Silvana Tenreyro was the solitary member of the MPC out-voted in calling for a quarter-point rise to 1.5%.

In minutes from the rates decision meeting, the Bank said the majority of the MPC felt a “more forceful policy action was justified”.

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It said: “Against the backdrop of another jump in energy prices, there had been indications that inflationary pressures were becoming more persistent and broadening to more domestically driven sectors.”

“Overall, a faster pace of policy tightening at this meeting would help to bring inflation back to the 2% target sustainably in the medium term, and to reduce the risks of a more extended and costly tightening cycle later,” the Bank added.

Glasgow Times: (PA)(PA) (Image: Newsquest)

How does high inflation affect me?

In finance, inflation refers to a general increase in prices and a fall in the purchasing value of money.

When the general price of items rises during inflation but the value of money stays the same, consumers can buy fewer items and goods for the same monetary sum.

Therefore, higher inflation would mean people's money would have less and less purchasing power.

As a result, savers may suffer and households may find it harder to stay within their budgets.

Coupled with an already-existing cost of living crisis and an energy cost hike, it will cause a tight squeeze for many households.

The rising cost of living will be affecting 2.5 million households, seeing people use their savings to afford to live.

This means that by 2024, one in five UK households will have no savings.

The institute also says the number of households living pay cheque to pay cheque will nearly double from 3.9 million to 6.8 million – or 25% – in 2024.

It was recently announced that the UK could soon be at risk of stagflation, when an economy sees slow growth, high unemployment and rising prices.

A mash-up of “stagnation” and “inflation”, it means the economy is not working properly. Prices will continue to increase while economic growth decreases.