In Depth

UK economy at highest risk of recession since 2007 crash

Resolution Foundation warns Britain can do little to evade a recession, and is ill-equipped to protect itself in the event of one

The British economy is at its highest risk of recession in over a decade, and needs active policy in an attempt to prevent a downturn, and, crucially, to mitigate damage in the event of one, a new report from the Resolution Foundation has found.

The report brings attention to the declining pound, an expanding deficit, uncertainty over Brexit, and poor domestic and international growth - plus the fact that UK recessions tend to happen on average every ten years - as factors that indicate a recession could be due “in the next few years”.

James Smith, the author of the report, warns further that policies put in place to overcome the last recession, namely close-to-zero interest rates and vast amounts of quantitative easing, are still in place: “The problem for the incoming government and the Bank of England... is that many of the tools used to fight the last downturn are either spent or severely blunted.”

The Financial Times sheds light on the low growth the UK economy is currently facing, and how close it already is to a technical recession: “The latest official data… suggests that growth in the second quarter will tumble from the first quarter rate of 0.5 per cent close to zero. Not much additional bad news would be needed to show a contraction on the quarter. A recession is defined as two negative quarters.”

The report also argues that the cause of many previous recessions, though different, reside in international, not domestic economic issues - significant when taken alongside the currently sluggish global economy.

Indeed, the Guardian places the report in the context of the Governor of the Bank of England Mark Carney’s ominous words about the state of the global economy. “Earlier this month… Mark Carney warned that there had been a ‘sea change’ in the world’s financial markets, driven by pessimism about the economic outlook.”

The Resolution Foundation developed a gauge for “recession risk” based on the slope of the government bond yield curve, which has been an accurate predictor of past recessions.

As Bloomberg reports: “Resolution calculates that the past five recessions cost an average of one million jobs in the UK. The last financial crisis would have been 12% worse, equivalent to 8,000 pounds per household, without a strong response from the British government and financial sector.”

The problem is that, as far as a response goes, there are few measures left to tackle the next recession.

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