Bank of England says UK recession is modest in historical terms and that upturn is probably underway

Bank of England Gov. Andrew Bailey said Tuesday that the U.K.’s economic recession that was confirmed last week is modest by historical standards and is probably over.

In testimony to lawmakers, Bailey said the two successive quarters of negative growth recorded in the second half of 2023 — the standard by which the U.K. measures a recession — add up cumulatively to a 0.5% reduction in the country's annual gross domestic product.“If you look at recessions going back to the 1970s, this is the weakest by a long way," he said, adding that the upturn is probably already underway.

Last week, the Office for National Statistics said economic activity declined by 0.3% in the fourth quarter of the year from the previous three-month period. That followed the previous quarter's 0.1% fall, which meant that the British economy is considered to be in recession.

Ben Broadbent, the deputy governor of the Bank of England, said the recession talk over the past few days has been “unhelpful." He suggested there was the possibility that upward revisions in the future may mean that a recession never actually took place. He also said that other countries, notably the U.S., take a far longer-term view when confirming a recession. Recessions there are officially declared by the National Bureau of Economic Research, a group of economists whose Business Cycle Dating Committee defines a recession as “a significant decline in economic activity that is spread across the economy and lasts more than a few months.”Still, the talk of a recession, however appropriate, is a blow for the governing Conservative Party ahead of a general election this year. Being in recession — however modest — is hardly the ideal backdrop for Prime Minister Rishi Sunak as he mulls when to call the election. Opinion polls show that his Conservative Party is heavily trailing the main opposition Labour Party.

Conservative lawmakers have been urging the Bank of England to cut interest rates soon in the hope that lower borrowing costs may prompt an economic recovery and a feel-good factor that could shore up the Conservative vote.

Bailey was careful not to offer any assurance that interest rates will be cut soon but indicated that they have probably peaked.

The Bank of England has raised its main interest rate aggressively to a 16-year high of 5.25% to get inflation from a peak of over 11% toward the 2% target. Inflation, which stands at 4%, is forecast by the bank to hit the target in the spring but then rise again as higher energy costs raise the cost of living.