Bank of England ‘wise man’ says recession is over

Andrew Sentance, one of the Bank of England's 'wise men' who sit on the interest rate-setting Monetary Policy Committee, has broken ranks with the official line and claimed that the UK recession is now at an end.

In a speech at Royal Holloway College, University of London, Dr Sentance, a former chief economist at British Airways, said that evidence "suggests the UK economy has moved on to a recovery track and growth has resumed in the second half of this year".

Sentance's assertion contradicts the figures from the Office of National Statistics (ONS), which last month found that the United Kingdom's GDP had shrunk by 0.4 per cent in the third quarter from July to September. Most analysts in the City had predicted a rise of at least 0.2 per cent, and the initial findings meant that Britain is now the only country in the G7 still in recession.

However, the ONS will be releasing figures later this month that are more detailed, and which could see a revision of last month's result. It seems unlikely that the ONS could have been so out of beam with its initial findings, but data revealed since that announcement have suggested that the economy is gradually moving back into positive territory. Figures released last week showed the rate of unemployment growth slowing, while house prices continue to rise and car sales have boomed.

Dr Sentance addressed this statistical anomaly, saying: "I would not take a negative signal from the decline recorded in the third quarter - which may change, anyway, as a result of data revisions."

But he was wary about the future, warning that public spending needed to be reined in. "A very significant fiscal tightening is necessary to rebalance the UK economy... cutting the government deficit will be a major challenge for the British economy as we move through the coming recovery phase of the economic cycle."

The need for caution was reinforced this morning when the inflation rate jumped from 1.1 per cent to 1.5 per cent, partly because of a firming up of petrol prices, which fell steeply this time last year. City analysts believe that inflation could go back up to three per cent in the New Year as higher energy costs and the end of the VAT holiday impact on prices.

Indeed Dr Sentance had said that a "surge" in inflation could result from the global recovery forcing up the prices for such commodities as oil and gold, which in recent weeks has hit new highs. ·