The Bank of England has raised the base rate of interest to 0.75 per cent.
The bank's monetary policy committee voted 8-1 to increase the rate by 0.25 percentage points, with the disagreeing member voting to maintain the rate at 0.5 per cent.
The MPC said the impact of the war in Ukraine has "accentuated" both the peak in inflation, and the squeeze on household incomes.
In a statement today (March 17), the committeee said the war is likely to exacerbate global supply chain disruptions, and has increased the uncertainty around the economic outlook significantly.
It said: "Global inflationary pressures will strengthen considerably further over coming months, while growth in economies that are net energy importers, including the United Kingdom, is likely to slow."
The committee said it expects inflation to increase to about 8 per cent in the second quarter of the year, with the possibility of a higher rise at some point in 2022.
This is higher than the group's previous prediction in February, that inflation would peak at 7.25 per cent in April.
It said this is due to the rise in global energy prices, a knock-on impact of the war since sanctions on Russia has driven up oil prices, as well as the rise in goods prices.
The committee warned that the latest rise in energy prices means that the energy cap could be "substantially higher" when it is next reset in October, which could temporarily push up inflation again towards the end of the year.
The MPC did not rule out further tightening, saying that further rises may be appropriate in coming months, but highlighted the risks of either action.
Becky O’Connor, head of pensions and savings at Interactive Investor, said savers and investors are damned if they do and damned if they do not.
“On the face of it a rate rise looks good for savers, but high inflation spoils the party."
She said people can either leave their money at the mercy of inflation in savings or in investments at the mercy of global stock market volatility, caused among other things by rising inflation and interest rates coming together.
"Neither seems particularly appealing if you are trying to preserve and grow the value of your hard-earned money."
But leaving spare cash in a current account rather than in savings or investments is not the answer, she said, as it would be eroded by inflation there too.
Across the pond
The news comes a day after the Federal Reserve raised its interest rate for the first time since 2018.
The US central bank hiked rates from 0.25 per cent to 0.5 per cent, and signalled that markets should expect further rises at all six remaining meetings this year.
In February, the central bank raised the base interest rate to 0.5 per cent, after a 5-4 vote in which four members voted instead for a higher raise, to 0.75 per cent.