LONDON (Reuters) – The Bank of England needs to raise interest rates further, but not as high as the 5.25% level which financial markets had priced in before the central bank’s latest rate decision, BoE Chief Economist Huw Pill said on Friday.

Pill was giving a presentation to businesses about the BoE’s decision on Thursday to raise interest rates to 3% from 2.25% – its biggest rate rise since 1989 as it battles the highest inflation in 40 years and a potentially lengthy recession.

Pill’s remarks hewed closely to the line set out by Governor Andrew Bailey and in a statement agreed by the majority of the BoE’s Monetary Policy Committee.

“We don’t take comfort from the fact that the profile of inflation, based on our constant-rate scenario at 3%, is keeping inflation not far off the 2% target at the two-year horizon,” he said, citing upside risks to inflation from factors such as a tight labour market.

“There is still more to be done … (but) market pricing is a bit skewed, if you like, in the direction of higher rates than we think is appropriate,” he added.