UK recession may already be over, says Bank boss

Bank of England governor Andrew Bailey appeared in front of MPs

The UK recession may already be over and there are now “distinct signs of an upturn”, the Bank of England’s governor has said.

By historical standards “this is the weakest recession by a long way,” Andrew Bailey told MPs.

The UK economy entered a downturn at the end of 2023, official figures showed last week.

Nevertheless, the Bank signalled on Tuesday that there was unlikely to be an imminent interest rate cut.

On Friday, the Office for National Statistics said the economy shrank by 0.3% between October and December. It had already contracted in the period between July and September.

The UK is considered to be in recession if it fails to grow for two successive quarters.

But Ben Broadbent, deputy governor of the Bank of England, who answered MPs’ questions alongside Mr Bailey, said this definition of a recession was “unhelpful”, and pointed out that other countries, such as the US, calculate it differently.

MPs repeatedly pressed Bank officials on why they were not already cutting interest rates. Conservative MP John Baron said the economy was “flashing red”.

But the Bank said it was waiting for further evidence in areas such as wage growth and the number of job vacancies to show that inflation – which measures the pace of price rises – had turned decisively.

Mr Bailey pointed to the possibility that inflation is likely to be helped by a fall in energy prices. Ofgem, the energy regulator, is expected on Friday to lower the price cap on UK electricity and gas bills from April.

But Mr Bailey said while that is likely to bring overall inflation down to the Bank of England’s 2% target during the spring, over the year it could rise again.

“We’re beginning to see things going in the right direction,” said he said. “We need to see more evidence of that… and that’s what will shape my vote going forwards.”

Mr Broadbent said interest rate cuts were possible this year. “In my view that is the more likely direction in which Bank rate is likely to move,” he said. “But even if that proves to be the case, the timing of any adjustment can only depend on the actual evolution of the economic data.”