The decision by the Monetary Policy Committee is the first rise in interest rates for about a decade. We should probably view this rise as a first instalment only as we move to a "new normal".
This is obviously bad news for those who have variable or tracking mortgages. The interest rate on tuition fee loans will also rise by 0.25%.
At the same time, 45 million savers across the UK will gain from slightly higher returns.
Similarly, retirees purchasing annuities will get a better deal.
There are a number of reasons why the decision was necessary. Inflation has been rising, which has been squeezing living standards in real terms. The Bank has taken the view that reduced prospects for future productivity growth imply that the rate of economic growth at which inflation begins to take off has actually been reduced.
As Governor Mark Carney put it, we must now operate within a lower speed limit. When interest rates are close to zero the financial system is not going to be able to operate efficiently. Rates have already risen in the US. Historically, the Bank tends to follow the American Federal Reserve. By starting the increases now it will hopefully be possible to phase the medium term adjustment in a series of small and manageable increases, and we are not likely to be returning to a world of 5-6% interest rates any time soon.
Esmond Birnie is a senior economist at the Ulster University