The Bank of England has raised interest rates to 3.75% - the first rise in almost four years. The previous rate of 3.5% was the lowest for 48 years.
In a statement, the Bank said a "modest increase" was necessary to keep inflation in line with the government's target of 2.5%.
The move was widely expected and follows concerns that consumer debt and house prices were rising to dangerously high levels.
Economists have warned that more interest rate increases are likely over the next year.
Some are forecasting that rates will be as high as 5-5.5% by the end of next year.
Manufacturers are concerned that increasing the cost of borrowing will stifle their attempts to recover from tough times.
