LONDON: The Bank of England stuck to its gradual increases in interest rates on Thursday, as other central banks took more urgent action, but said it was ready to act “forcefully” if needed to stamp out dangers posed by inflation it now sees topping 11%.

A day after the US Federal Reserve raised rates by the most since 1994 with a 75 basis point hike, the BoE increased Bank Rate by another 25 basis points even as it warned that Britain’s economy would shrink in the April-June quarter.

The Monetary Policy Committee voted 6-3 for the hike to 1.25%, the same breakdown as in May with the minority voting for a 50 basis-point increase. Britain’s benchmark rate is now at its highest since January 2009, when borrowing costs were slashed as the global financial crisis raged. It was the fifth time the BoE has raised rates since December when it became the first major central bank to tighten monetary policy following the COVID-19 pandemic.

But some critics say it is moving too slowly to stop the rise in inflation from becoming entrenched in pay deals and inflation expectations, damaging the economy over the long term.

“The scale, pace and timing of any further increases in Bank Rate will reflect the Committee’s assessment of the economic outlook and inflationary pressures,” the BoE said.

“The Committee will be particularly alert to indications of more persistent inflationary pressures, and will if necessary act forcefully in response.”

Sterling fell more than a cent against the US dollar before recovering its losses while British government bond yields rocketed.

Investors moved to price in a more than 60% chance of a 50 basis-point rise at the BoE’s next scheduled meeting on Aug. 4, although economists debated whether the BoE’s new language really tilted towards aggressive action in coming months.

JPMorgan said the BoE’s line on acting forcefully was hawkish and opened the door to bigger rate hikes.

“We are putting in a 50 bp hike for August in anticipation the BoE will not get better news on inflation persistence any time soon,” said JPMorgan economist Allan Monks.

Citi however said the MPC had offered a “steady hand ... but no clear steer” on its future intentions.

As in May, MPC members Catherine Mann, Jonathan Haskel and Michael Saunders voted for a bigger, 50 basis-point increase.