The economy has flatlined and only a quarter of the impact from the Bank of England’s 14 consecutive increases in interest rates has fed through, according to one of its policymakers. Swati Dhingra, a member of the central bank’s rate-setting monetary policy committee (MPC), said the full force of the steep rise in borrowing costs to 5.25 percent, after years of cheap loans and low mortgage rates, was only just beginning to hit household incomes.
Speaking to the BBC, she said she was concerned that millions of mostly young and poor households would be affected next year if interest rates remain high as expected. Dhingra said the rise in food and energy costs disproportionately affected those on low incomes, while the increase in mortgage costs and rents hit young people.
Speaking to the BBC, she said: “The economy’s already flatlined. And we think only about 20 percent or 25 percent of the impact of the interest rate hikes have been fed through to the economy. So I think that there’s also this worry that that might mean that we’re going to have to pay a higher cost than we should be paying.” In its last economic health check, the Bank said about 4 million households yet to face increased mortgage costs would “do so by the end of 2026”.
It means about three-quarters of the households with fixed-rate mortgages due to expire before the end of 2026 have yet to feel the pain of higher debt costs.
The economy grew in August by 0.2 percent, according to Office for National Statistics data released on Thursday, up from a contraction of 0.6 percent in July. Interest rates paused in September, though the MPC signaled they would stay high for an extended period, which most economists interpreted as at least to the end of 2024.Weaker spending and recession fears due to high interest rates could hurt younger workers and those on lower wages, the same groups who were among the hardest hit by inflation, she said. Bank of England figures on October 12, 2023 showed more UK households had defaulted on their secured loans such as mortgages in the April-June quarter, and the situation was expected to worsen in the July-September quarter. https://shorturl.at/dxQ26
Source: IBP