The last time the European Central Bank increased interest rates, Jedward were number one, Enda Kenny was taoiseach and Ireland was living under the influence of the troika as a result of the bailout.

The rest of Europe was also grappling its way out of the economic mire of the financial crash.

But in July of 2011, the threat of inflation in the performing economies of Europe prompted the ECB to raise its main lending rate by a quarter of one percent to 1.5%.

There's been an awful lot of water under the proverbial economic bridge since then and a stagnating European economy subsequently prompted all sorts of policy antics from the ECB.

The main lending rate was cut to 0% in March 2016 and has remained there ever since.

The rate the ECB pays banks for holding money on deposit for them went further, falling gradually to -0.5% between 2014 and 2019, where it has remained since.

The bank also pumped vast sums of liquidity into the Eurozone monetary system through bond purchasing and other complicated tricks.

But all that is now coming to an end, as the economic sands shift once again.

And today the ECB announced a greater than expected 0.5% increase in rates from July 27, saying it is appropriate to take a larger first step than signalled at its previous meeting because of its updated assessment of inflation risks.

So why is the ECB raising rates?

In a word, inflation.

While in 2011 when the ECB last increased rates there was a threat of inflation across Europe, today it is already rampant.

Ireland's annual inflation rate in June, as measured by the Central Statistics Office, was 9.1% - the highest level since 1984.

Across the euro area as a whole, it is running at around 8.6%.

That kind of level of price increases is not good for consumers, businesses or anyone really and it hurts economic growth.

So the best, albeit blunt, tool that the ECB has to counteract it is to raise interest rates.

Because higher rates mean higher borrowing costs and this eventually leads to people spending less.

That in turn dampens down demand for goods and services, which causes inflation (caused fundamentally by a supply demand imbalance) to fall.

In European Central Bank speak, this raising of rates up off their current floor (or out of their basement in deposit rate terms) is known as "normalising" of monetary policy.

A useful reminder, were it needed, that the era of very cheap or free money we've become so accustomed to over the past decade is far from, well, normal.

What will it mean for borrowers?

As we just mentioned, higher interest rates usually mean higher borrowing costs – for those with mortgages, personal or car loans, credit card debt, the lot.

Although, just because the ECB is putting up rates, it doesn’t necessarily mean that all banks and other lenders will immediately increase their rates too.

Permanent TSB boss Eamonn Crowley recently indicated that it might choose to absorb the first couple of rounds of ECB rate hikes.

That said, you should expect your borrowing costs to rise, if not now, then soon.

The good news, if there is any, is that Irish mortgage holders are in a better position than they were 11 years ago when rates last increased.

Back then personal debt levels overall were high and over 80% of home loans had standard variable or tracker rates.

According to a recent Central Bank report, the aggregate indebtedness of Irish households is now at its lowest level since before the global financial crisis.

This means that the household sector as a whole is in a better position to absorb interest rate increases than it was 15 years ago.

While today around 54% of mortgages are standard variable or tracker, with the others on fixed rates.

That doesn't mean those who have fixed are insulated, because most fixed periods are relatively short and when they end the borrower may be looking at a marked rise.

But it may provide a buffer to some, particularly if rates don't continue climbing or come back down.

Can you give me some examples of what the increased rates will mean for variable or tracker mortgages?

Joey Sheahan, Head of Credit at online broker, has been crunching some numbers.

He says if you take someone with a €250,000 mortgage that has 25 years remaining and who is paying a tracker rate of 1% that will now increase to 1.5%, they will pay an extra €47 monthly or €564 annually, or €14,100 over the life of mortgage.

In the case of someone with a variable rate mortgage, with €250,000 left to repay over 25 years, whose rate will now move from 3.2% to 3.7%, their monthly repayment will increase by €67 or €804 annually or €20,051 over the 25 years.

Is there anything positive in this news?

The big positive, of course, is that if the rate increases work, they will help to tame inflation.

But aside from that, the other big win is for depositors.

Recently, because the ECB was charging banks negative rates for holding money on deposit, the banks in turn were not giving any interest on people's savings, and in the case of large depositors were actually charging them for storing their cash.

As the ECB deposit rate begins to turn positive once more, the banks should start offering interest on savings once more – though they may be slow to do this because many of them are flush with cash.

It won't be much, given it’s coming from such a low base, but it's better than nothing and will help offset some of the value that is being lost from savings as the cost of living rises.

Will there be more increases?

According to the European Central Bank, there will.

The bank had previously indicated that if the inflationary environment remains the same, then in September it will increase rates again, this time by around 0.5%, in order to get inflation back down to its medium-term target range of around 2%.

An increase of that magnitude would be its largest one-off increase since June of 2000.

However, in its statement today, the bank didn't give any firm commitment on what it would do next.

It only said further normalisation of interest rates will be appropriate at future Governing Council meetings and such decisions will be based on data, with a meeting-by-meeting approach to be taken.

The difficulty is that all the economic uncertainty across Europe, caused by the Ukraine war, inflation, the energy crisis, supply chain problems and the monetary policy issues, are weighing very heavily on economic growth.

Some are even predicting Europe could enter recession this year, giving rise to the dreaded fear of stagflation – a stagnating economy in an inflationary environment.

So the ECB may decide not to do as much as it had previously indicated it might do in September, or may even do more - who knows!

The general view on the markets is that rates could rise as much as 1.7% this year.

What would that mean for individual borrowers? It all depends on each individual’s loan circumstances.

But according to the Central Bank, on average the immediate impact of a 1% increase could be €65 across all standard variable rate mortgages, with the median monthly repayment rising from €862 to €927.

That would put many people, as Jedward once sang, Under Pressure.