Bank of England (BoE) Governor Andrew Bailey said on Wednesday a risk “very clearly” existed that inflation, which is running at a 30-year high, gets embedded in Britain’s economy if a cycle of higher prices keeps pushing up wages.

“It’s not just wage setting, it’s also price setting it’s both,” Bailey told lawmakers. “There is very clearly an upside risk there. The upside risk... comes through from the second-round effects.”

Bailey said there were also risks that inflation comes in lower than the BoE’s forecasts over the next three years and he urged investors not to get carried away with bets on future interest rate hikes.

The BoE became the world’s first major central bank to raise borrowing costs after the coronavirus pandemic in December and it pushed its benchmark Bank Rate up again this month to 0.5 per cent from 0.25 per cent.

Four of its nine monetary policymakers voted for a bigger increase to 0.75 per cent, which would have been the first half-point rise since BoE independence in 1997.

British inflation hit its highest since 1992 in January at 5.5 per cent and the BoE expects it to peak at about 7.25 per cent in April when a 54 per cent rise in regulated household energy tariffs takes effect.

Bailey was asked by some members of parliament’s Treasury Committee to explain comments he made earlier this month about the need for constraint in pay deals, even with inflation running so high.

One lawmaker, Angela Eagle from the opposition Labour Party, asked Bailey to state his pay which he said he could not remember precisely before confirming it was 575,538 pounds ($783,422) a year including his pension plan.

Bailey said inflation would accelerate if everyone tried to get pay rises that exceeded inflation, and that the losers would be the workers with the weakest pay-bargaining power.

Investors are fully pricing in another 25 basis-point rate hike at the BoE’s next scheduled meeting which concludes on March 17, followed by another in May, and see rates at nearly 2 per cent by the end of this year.

Bailey said the BoE top monetary policymakers did not have a big disagreement on the level that Bank Rate needed to reach eventually, even if they were divided this month about the pace of the increases.

“It’s important not to put too much emphasis on... whether we took a different view on the level that we expected to get to, as opposed to the pace by which we get there,” he said.

Silvana Tenreyro, an external member of the BoE’s Monetary Policy Committee, said that the BoE’s forecasts showed inflation in three years’ time would be only just above its 2% target if rates did not rise at all, implying that only “really modest” tightening was needed.

MPC member Jonathan Haskel, who was part of the minority that voted for a rise in Bank Rate to 0.75 per cent, said it was “a very, very finely balanced decision”.

Deputy Governor Ben Broadbent said the surge in energy prices - which has been the inflation rate’s biggest driver - was likely to be twice as big in 2022 than in any year in the 1970s, when high inflation plagued many economies.