LONDON (AP) — The Bank of England raised its key interest rate Thursday, by another half-percentage point, to the highest level in 14 years. But despite facing inflation that outpaces other major economies, it avoided more aggressive hikes made by the US Federal Reserve and other central banks.

It is the Bank of England’s seventh-straight move to increase borrowing costs as rising food and energy prices fuels a cost of living crisis that is considered the worst in a generation. Despite facing a slumping currency, tight labour market, and inflation near its highest level in four decades, officials held off on acting more boldly as they predicted a second-consecutive drop in economic output this quarter, an informal definition of recession.

The bank matched its half-point increase last month — the biggest in 27 years — to bring its benchmark rate to 2.25 per cent. The decision was delayed for a week as the United Kingdom mourned Queen Elizabeth II, and comes after new Prime Minister Liz Truss’s Government unveiled a massive relief package aimed at helping consumers and businesses cope with skyrocketing energy bills.

The new measures have eased uncertainty over energy costs and are “likely to limit significantly further increases” in consumer prices, the bank’s policymakers said. They expected inflation — now at 9.9 per cent — to peak at 11 per cent in October, lower than previously forecast.

“Nevertheless, energy bills will still go up and, combined with the indirect effects of higher energy costs, inflation is expected to remain above 10 per cent over the following few months before starting to fall back,” the monetary policy committee said.

The bank signalled it is prepared to respond more forcefully at its November meeting, if needed. Its decision comes during a busy week for central bank action marked by much more aggressive moves to bring down soaring consumer prices.

The US Federal Reserve hiked rates Wednesday by three-quarters of a point for the third-consecutive time and forecast that more large increases were ahead. Also Thursday, the Swiss central bank enacted its biggest-ever hike to its key interest rate.

Three of the British bank’s nine committee members wanted a similar three-quarter-point raise but were outvoted by five who preferred a half-point and one who voted for a quarter-point.

The decision “suggests the Bank of England is concerned about the UK’s economic deteriorating outlook amid the looming threat of recession”, said Victoria Scholar, head of investment at the interactive investor. “The timid increase will do little to stem the slide in sterling but may avoid inadvertently inducing unnecessary pain for the economy which is already grappling with slowing demand and deteriorating confidence.”

Surging inflation is a worry for central banks because it saps economic growth by eroding people’s purchasing power. Raising interest rates — the traditional tool to combat inflation — reduces demand and therefore prices by making it more expensive to borrow money for big purchases like cars and homes.

Inflation in the United Kingdom hit 9.9 per cent in August, close to its highest level since 1982 and five times higher than the Bank of England’s 2 per cent target. The British pound is at its weakest against the dollar in 37 years, contributing to imported inflation.

To ease the crunch, Truss’s Government announced it would cap energy bills for households and businesses that have soared as Russia’s war in Ukraine drives up the price of natural gas needed for heating.

The Treasury is expected to publish a “mini budget” Friday with more economic stimulus measures, and the bank said it won’t be able to assess how they will affect inflation until its November meeting.

The Bank of England expects gross domestic product to fall by 0.1 per cent in the third quarter, below its August projection of 0.4 per cent growth. That would be a second quarterly decline after official estimates showed output fell by 0.1 per cent in the previous three-month period.

The weakness partly reflects a smaller-than-expected rebound after an extra June holiday to celebrate The Queen’s 70 years on the throne and the impact of another public holiday Monday for her funeral, officials said.

The bank avoided pressure to go bigger even as other banks around the world take aggressive action against inflation fueled by the global economy’s recovery from the novel coronavirus pandemic and then the war in Ukraine.

This month, Sweden’s central bank raised its key interest rate by a full percentage point, while the European Central Bank delivered its largest-ever rate increase with a three-quarter point hike for the 19 countries that use the euro currency.

But British policymakers signalled they will “respond forcefully, as necessary” if there are signs that inflationary pressure is more persistent than expected, “including from stronger demand”.

The bank said it’s also moving ahead with plans to trim its bond holdings built up under a stimulus programme, selling off 80 billion pounds (US$90 billion) worth of assets over the next year to bring its portfolio down to 758 billion pounds.