LONDON (Reuters) – The Bank of England raised interest rates for the first time in more than 10 years on Thursday but said it expected only “very gradual” further increases as Britain prepares to leave the European Union, sending sterling down sharply.

The BoE’s nine rate-setters voted 7-2 to increase the Bank Rate to 0.50 percent from 0.25 percent, reversing an emergency cut made in August 2016 after the Brexit vote.

It was the first BoE hike since 2007, before the global financial crisis tipped Britain into a deep recession.

However, investors focused on the BoE’s wariness about its next moves, pushing down sterling by its most in five months against a basket of other major currencies =GBP. The five-year gilt yield fell by the most since the day after the BoE cut rates last year.

The BoE did not repeat its previous warnings to markets that they were underestimating the extent of future rises.

That echoed the cautious approach taken by the U.S. Federal Reserve and the European Central Bank to attempts to wean their economies off massive stimulus programmes.

BoE Governor Mark Carney said that in broad-brush terms, the central bank was on the same page as investors who expect two more 25 basis-point rate hikes before the end of 2020.

Nonetheless, he cautioned investors not to be too relaxed as inflation was still on course to exceed the BoE’s 2 percent target in three years’ time.

“We in fact need those two additional rate increases in order to get that return of inflation to target,” Carney told reporters. “If you look closely at the forecast, inflation approaches the target, it doesn’t quite get there, and the economy is likely to be in a position of excess demand.”

Britain’s economy slowed sharply this year after the Brexit vote in 2016, raising questions about the wisdom of raising rates now among many economists.

But Carney fears that Brexit will aggravate Britain’s weak productivity growth and make the economy more inflation-prone.

Carney said the Brexit talks were likely to be the biggest factor for the next BoE move on rates, either up or down.

He also said the sheer novelty of a first rate hike created some uncertainty about its impact on the economy, but there was no reason to expect this to be larger than normal.

Thursday’s move meant the BoE followed through on its signal in September that a rate hike was coming. That may go some way to help counteract Carney’s reputation – in the words of one British lawmaker – of being an “unreliable boyfriend” who did not live up to previous guidance about higher rates.

TIMING IT RIGHT?

The two Monetary Policy Committee members who voted to keep rates steady, deputy governors Jon Cunliffe and Dave Ramsden, said wage growth was too weak to justify a rate rise now.

But the BoE said all nine MPC members backed its previous guidance that any future increases in the Bank Rate would be “at a gradual pace and to a limited extent”.

The BoE said debt servicing costs paid by British households and companies remained “historically very low”.

UK Finance, representing major lenders, said 3.7 million people with variable-rate mortgages would pay an average of 13 pounds ($17) more a month for every 100,000 pounds of debt.

Economists polled by Reuters had overwhelmingly predicted a hike on Thursday, although nearly three-quarters of them thought it was too soon to make such a move.

“It’s a bit of a gamble to hike at a time when the economy is stuttering and nobody knows which way the Brexit dice are going to roll,” Dean Turner, an economist at UBS Wealth Management, said.

Howard Archer of economics consultancy EY ITEM Club, predicted rates would rise again only in late 2018.

Credit Suisse strategist Pierre Bose said the BoE message increased the importance of the Brexit talks: “Progress … could drive bond yields higher and a rebound in sterling.”

BoE DILEMMA

Thursday’s vote split reflects the dilemma facing the BoE.

On the one hand, Britain’s economy has grown slowly this year as a jump in inflation caused by the slump in the value of the pound after the Brexit vote pinched spending by consumers. Also, companies are offering sub-inflation pay rises to staff.

The central bank said the decision to leave the EU was already having a “noticeable impact” on the economic outlook.

But the lowest unemployment rate since the 1970s and an expected improvement in lacklustre productivity growth suggested pay growth was about to rise, the BoE added.

The BoE said it expected inflation to have peaked at 3.2 percent in October. Inflation would only fall back to close to its 2 percent target if Bank Rate rose in line with the “gently rising” path implied in financial markets.

This would mean rates hit 1 percent by 2020, with a single quarter percentage-point rise likely next year.

The BoE stuck with its forecasts that Britain’s economy would grow by 1.6 percent next year and by 1.7 percent in 2019.

Before the financial crisis, Britain’s economy typically grew by more than 2 percent a year.

($1 = 0.7626 pounds)