The economy has flatlined, with only a quarter of the impact from the Bank of England’s consecutive interest rate increases being felt so far, according to a member of the monetary policy committee (MPC).
Swati Dhingra, a policymaker at the central bank, stated that the recent rise in borrowing costs to 5.25% has just begun affecting household incomes, particularly young and low-income households who will be impacted next year if interest rates remain high. Dhingra also highlighted that these households are disproportionately affected by rising food and energy costs, as well as increasing mortgage costs and rents.
During an interview with the BBC, Dhingra expressed concern about the economy’s current situation and the potential for higher costs due to the incomplete transmission of interest rate hikes. She mentioned that only about 20% or 25% of the impact has been realized, which could lead to more significant consequences.
According to the Bank of England, approximately four million households are yet to experience increased mortgage costs, and this is expected to happen by the end of 2026. Thus, three-quarters of households with fixed-rate mortgages expiring before the end of 2026 have not yet felt the effects of higher debt costs.
The Office for National Statistics reported that the economy grew by 0.2% in August, marking a recovery from the 0.6% contraction in July. However, Dhingra, who joined the MPC from the London School of Economics, believes that this small uplift is not significant enough to prevent a recession.
Susannah Streeter, the head of money and markets at Hargreaves Lansdown, stated that further interest rate rises are unlikely due to the central bank’s concerns about an economic downturn. She predicted that the Bank of England will continue to hold off on raising interest rates.
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