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%, 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% or 25% 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%, according to Office for National Statistics data released on Thursday, up from a contraction of 0.6% in July. Dhingra, who joined the MPC last year from the London School of Economics, said the August uplift was too small to avert a recession. “When you’re growing as slowly as we’re growing now, the chances of recession or not recession are going to be pretty equally balanced. So we should be prepared for that … it’s not going to be great times ahead,” she said. Susannah Streeter, the head of money and markets at the stockbroker Hargreaves Lansdown, said there was little prospect of further interest rate rises now that the central bank was concerned about a downturn in the economy. “With little momentum in the economy and plenty of risk that the hike in borrowing costs will take a greater toll during the months to come, Bank of England policymakers look set to keep the pause button held on interest rate hikes,” she said. Interest rates paused in September, though the MPC signalled 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 Thursday 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. The Bank’s latest credit conditions report suggested the increase in UK interest rates, which began in December 2021, hadd left some households unable to meet their mortgage payments or car financing packages. Lenders also reported they had restricted the availability of secured credit to households in the second quarter, and expected to cut back further in the third quarter.