London — In an unexpected decision, the Bank of England has announced an increase in the base rate from 4.5% to 5%. The rise comes as a surprise to many forecasters who had anticipated a smaller adjustment. The last time the base rate stood at 5% or higher was back in 2008.

The primary objective behind the hike in interest rates is to combat inflation by reducing the disposable income of mortgage-holders. The government aims to bring inflation down to 5% by the end of the year.

Chancellor Rishi Sunak acknowledged the challenges posed by the current economic situation, stating, “I always said this would be hard – and clearly it’s got harder over the past few months.” However, he reassured the public, saying, “I am totally, 100%, on it, and it’s going to be OK.”

Of the nine members on the bank’s committee, seven voted in favor of the 5% rate, while two advocated for no change at all.

The increase in interest rates reflects the Bank of England’s commitment to managing inflation and stabilizing the economy. However, the decision will likely have implications for borrowers, particularly mortgage-holders, who will experience a reduction in their spending power due to higher interest payments.

Financial markets are expected to react to this unexpected development, and economists will closely monitor its impact on consumer spending and economic growth in the coming months.