LONDON: The Bank of England raised interest rates on Thursday in a bid to stop fast-rising inflation becoming embedded, but with households facing a huge hit from soaring energy bills, it softened its language on the need for more increases.

Eight of the nine Monetary Policy Committee (MPC) members voted to raise Bank Rate to 0.75% from 0.5%, their third hike in as many meetings and taking rates back to their pre-pandemic level.

On Wednesday, the U.S. Federal Reserve also raised borrowing costs, the first time it had done so since the COVID-19 pandemic.

BoE Deputy Governor Jon Cunliffe was the sole advocate of keeping rates on hold, warning of a big hit to demand from higher commodity prices. Economists polled by Reuters had expected a unanimous vote.

The BoE said inflation was set to reach around 8% in April — almost a percentage point more than it forecast last month and four times its 2% target — and warned it could peak even higher later in the year.

BoE agrees third straight rate hike as inflation soars

Soaring energy bills, driven even higher by the conflict in Ukraine, meant the squeeze on British household budgets was likely to be much bigger than the BoE had predicted last month — which itself was set to be the biggest in 30 years.

Reflecting these worries about the outlook for growth, policymakers on Thursday pushed back against investors’ bets that Bank Rate will rise sharply to around 2% by the end of this year, toning down its language on the need for more hikes.

“The Committee judged that some further modest tightening might be appropriate in the coming months, but there were risks on both sides of that judgement depending on how medium-term prospects evolved,” the BoE said.

Last month the MPC said further modest tightening “is likely to be appropriate”.

The pound slumped almost a cent against the dollar and British government bond prices jumped as investors trimmed their bets that the BoE would raise rates rapidly this year.

“The MPC are clearly making moves to counter growing inflation. But they will be walking a tightrope in the months ahead,” Confederation of British Industry economist Alpesh Paleja said.