The head of the Bank of England has said he is “much more hopeful” for the UK economy, as interest rates were raised to their highest for 14 years.

The decision to lift rates to 4.25% from 4% came after the inflation rate rose unexpectedly last month.

It also follows the collapse of two US banks and the rescue of Swiss lender Credit Suisse, but the Bank said the UK financial system was “resilient”.

The Bank also said the UK was no longer heading into an immediate recession.

“We were really a bit on a knife edge as to whether there would be a recession… but I’m a bit more optimistic now,” said Bank governor Andrew Bailey.

However, Mr. Bailey warned the UK was “not off to the races”, with the economy expected to grow only slightly in the coming months.

Interest rates have been rising steadily in an attempt to tackle rising prices.

Inflation, which is the pace at which prices rise, remains close to its highest level for 40 years at 10.4% in the year to February – more than five times the Bank’s target.

The jump in rates means that mortgage costs for some homeowners will rise and some savers could get better returns.

People on typical tracker mortgage deals will pay about £24 more a month following the latest increase and those on standard variable rate mortgages face a £15 jump.