The Bank of England has announced it is raising the interest rate from 0.5% to 0.75% in only the second increase since 2007.

The increase in the base rate of lending announced on Thursday is the result of an improving economic outlook boosted by the UK's summer heatwave, the bank said.

Policymakers on the bank's nine-strong monetary policy committee (MPC) voted unanimously in favour of the quarter point rise, which they hope will shift inflation in line with targets.

Millions of borrowers on variable rate mortgages will be affected by the decision, with many paying anything from £10 to £20 a month more than they are now.

It follows an identical rate rise last November, when the MPC increased the rate back up to 0.5% after it was slashed to 0.25% in the immediate wake of Brexit.

Now at 0.75%, the UK's interest rate is at its highest level since March 2009, when it was cut to an emergency low of 0.5% in an effort to contain the fall-out from the financial crisis.

The Bank kept its forecast for UK growth unchanged at 1.4% in 2018, but upped the outlook to 1.8% in 2019.

The pound made gains versus the euro following the news and was trading higher by nearly 0.3% at 1.128.

The interest rate decision also improved sterling's standing versus the US dollar but was still trading lower by around 0.1% at 1.311.

The rate rise means those who have variable-rate mortgages or other loans will have to make increased payments.

Those on fixed rates mortgages will not be affected by the change for the duration of their term.

Savers could get a greater return on their investment as a result of the base rate rise, but savings rates may not necessarily follow.

After last year's quarter point hike in the rate, experts say only around half of savings accounts raised their rates accordingly, in part due to government-subsidised savings schemes.

The Bank of England previously backed off from a widely anticipated rate hike in May to wait and see how the economy recovered after extreme weather caused by the "beast from the east".

It also announced on Thursday an increase in its inflation forecasts, despite the inflation figure recently coming in lower than expected - unchanged at 2.4% in June - while wage growth has also been weak.

But with the bank still forecasting higher inflation in future due to a weaker pound and higher oil and energy prices, it felt the rate rise was justified.

Minutes of the bank's rate meeting signalled there would also be further rises to come as policymakers continue to look to bring inflation back to target, although they continued to stress that these would be "gradual" and "limited".

They also explained that Brexit is still one of the most important considerations for the bank's rate-setting committee.

"The MPC sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment," the report said.

"In pursuing that objective, the main challenges for the committee had continued to be to assess the economic implications of the United Kingdom withdrawing from the European Union and to identify the appropriate policy response to that changing outlook.

"During the negotiation period, those economic implications would be influenced significantly by the expectations of households, firms and financial markets about the United Kingdom's eventual economic relationships with the European Union and other countries, and the transition to them."

Justifying the rise, the minutes add: "Since the May report, the near-term outlook had evolved broadly in line with the MPC's expectations.

"Although the global outlook was a little softer, recent data appeared to confirm that the dip in UK output in the first quarter had been temporary, with momentum recovering in the second quarter.

"The labour market had continued to tighten and unit labour cost growth had firmed.

"Given these developments, a 0.25 percentage point increase in bank rate was warranted at this meeting to return inflation sustainably to the target."