A two-year recession has begun, says the Bank of England

Alongside a rather defensive interest rate hike today, the Bank of England unveiled some alarming forecasts for economic growth. The BoE predicts the economy will be in ‘recession for a long period’ – until mid-2024 – with inflation peaking around 11 per cent. 

While the Bank is predicting that the recession will be shallower than other contractions, we are looking at the longest recession on record. The Bank thinks recession is already underway (the economy contracted by 0.3 per cent in August –we will get September’s figures next week) and will last for two years. The driving factors for economic contraction, the Bank thinks, will be ‘high energy prices and materially tighter financial conditions’. The former is in constant flux, both in regard to both the wholesale price of energy but also on-and-off government intervention.

This is a long way from the predicted economic boom post-Covid, the V-shaped recovery that was expected to continue well past pre-pandemic GDP levels and give Britain a major boost. In reality, the UK has become a G7 laggard, struggling to even get back to its February 2020 levels. Now, just on the cusp of this, it is expected to see economic downturn once more.  The Bank’s predictions are in line with the most recent PMI data (​business data which shows activity rising or falling) which also suggests the UK is already in recession. PMI for October is at 47.2 – any mark below 50 is indication of a shrinking economy.

When economic growth does pick back up again, expected by the Bank to happen in Q4 of 2024, it does not predict more than a 0.75 per cent rise. This means GDP is ‘expected to remain well below pre-pandemic rates’. These grim predictions suggest that come 2025, five years after the pandemic hit the UK, Brits are estimated to still be worse off than they were before Covid. That’s not a long recovery; it's a suggestion of a never-ending recovery. Of course, these are forecasts, and growth numbers are not set in stone. It’s a reminder that, in the words of Rishi Sunak, his predecessor Liz Truss ‘was not wrong to want to improve growth in this country’. But with so many of those supply-side reforms politically controversial and underdeveloped, the UK appears to be a way off from improving its economic outlook.