While millions deal with a cost-of-living crisis, the Bank of England has hiked interest rates in a bid to bring inflation down and ultimately tackle soaring prices.
Almost two-thirds of the public say they are concerned about rising interest rates and experts are warning that inflation could peak at 15%, adding to the already painful everyday costs.
Interest rates are up to 1.75% from 1.25% – the highest level since January 2009.
Meanwhile, inflation is expected to peak at 13.3% in October, the highest level since September 1980, according to the Bank of England.
Here's what this could mean for your finances.
Renters are likely to come under pressure, as buy-to-let landlords pass on higher borrowing costs to their tenants.
Simon Leadbetter, Global CEO of Fine & Country, warned earlier this year "struggling first-time buyers, who already face the greatest hurdles in the housing market, may find themselves trapped in expensive rentals for even longer."
In theory, a rise in interest rates is a positive for those putting money away as their savings will earn more interest each year.
The trouble is many people are struggling to set anything aside at the moment due to rising costs.
Sarah Pennells, consumer finance specialist at insurance company Royal London, has said this interest rate rise isn't necessarily a plus for savers.
“While rising interest rates are generally a win for savers, our research shows that almost a third of people were planning to reduce the amount they were saving, while a fifth would stop altogether, as a result of the cost-of-living crisis," she said in June.
Savers are continuing to lose value on cash they have in the bank, she added, as the gap between interest rates and inflation - which is at 9.4% and could rise to 13.3% in October - remains.
The Bank of England has already been given a little more wriggle room by the chancellor, who is set to funnel billions to struggling households to help them deal with soaring energy bills.
But the interest rate raise will eat away at some of this support, because the cost of borrowing will go up for homeowners.
On Thursday, Ofgem also confirmed that the energy price cap will be updated quarterly, rather than every six months, as it warned that customers face a “very challenging winter ahead”.
It is expected bills will rise in October and then again in January. Cornwall Insight calculates average energy bill will remain significantly above £3,000 a year until at least 2024.
In May, the Bank assumed the energy price cap would rise to £2,800 in October, but it now believes it will be closer to £3,500.
A rise in interest rates is passed on from lenders to the borrower.
The nine million people in the UK with a mortgage will feel the impact first - particularly those on standard variable rates (making up around 75% of all mortgages).
Those on tracker mortgages - a type of variable rate around two million people in the country are on - will see their monthly repayments increase as well. Since December, this group has already seen a £118 rise per month.
For the majority on fixed-rate mortgages, there will be no change until the end of the term - when rates are likely to rise. According to UK Finance, 1.3 million fixed mortgages are ending at some point this year.
Moneyhelper.org has a mortgage calculator to help work out how your monthly payments may change.
What is a mortgage affordability test?
Previously, someone looking to take out a mortgage had to pass two main tests.
The first, known as a mortgage affordability test, was introduced in 2014. It was used by lenders to assess whether prospective borrowers could repay their mortgage if interest rates soared to 3%.
It took into account other financial commitments the borrower had alongside the mortgage and specified the 3% ‘stress’ interest rate to ensure they could still afford their repayments if circumstances changed.
The recommendation was introduced to “guard against a loosening in mortgage underwriting standards and a material increase in household indebtedness that could in turn amplify an economic downturn and so increase financial stability risks,” the Bank of England said.
In June, the Bank of England’s Financial Policy Committee (FPC) made the decision to scrap this affordability test from 1 August.
The second ‘test’ for prospective borrowers - known as the loan to income (LTI) ‘flow limit’ - will not be withdrawn.
This test refers to how much the mortgage applicant can borrow relative to their annual income - typically 4.5 times their income.
What will scrapping the mortgage affordability test mean for borrowers?
The absence of the FPC’s affordability test would make things “simpler, more predictable and reduce the impact on a small proportion of borrowers”, according to the Bank of England.
It could prove particularly beneficial to self-employed or freelance workers when assessing their ability to pay back a mortgage.
However, the Financial Conduct Authority (FCA) says this does not mean that lenders will automatically reduce the interest rate they use for assessing affordability.
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A spokesperson said: “While the FPC is withdrawing its ‘interest rate stress test’ recommendation, our rules on responsible lending continue to apply as before.
“These include a requirement that firms consider the effect of likely future interest rate rises when assessing affordability.”
The FCA’s rules mean that for appropriate loans - usually where the interest rate is fixed for less than five years - lenders must take account of likely future interest rate increases.
The FCA added: “When doing this, we require a lender to have regard to market expectations.
“As a minimum, we specify that mortgage lenders must assume that interest rates will rise by at least 1% over the first five years of the mortgage.
“This 1% rise is only a minimum. If market expectations are for an interest rate increase of more than 1%, then firms must stress at this higher level.”
What steps you can take to help with an interest rates rise
Insurance company Royal London suggests the following six steps to cope with the rise:
Check how much interest your savings are earning. Some easy access accounts pay 0.1% interest, or even less so you could be in for a nasty surprise.
Check comparison sites and best buy tables for savings products but wait a couple of weeks before you choose, so banks and building societies can announce any savings rate rises.
Use comparison or mortgage broker websites to see how your variable mortgage rate compares to the best buys.
Not all mortgage lenders take the same approach when assessing whether they want to lend to a particular borrower. A mortgage broker can advise you on the best option for you.
Be aware that while the interest rate on personal loans is fixed, rates on credit cards can rise for both new and existing customers.