Ross Clark Ross Clark

Why aren’t we in a recession?

Well, that’s alright, then — we’re not going to have another recession. True, the Bank of England’s monetary policy committee expects the economy to shrink by 4 per cent in the first quarter of this year — following a fall of 9.9 per cent fall last year, itself the deepest plunge in economic growth in modern times. By the spring, we may have several million unemployed as the furlough scheme comes to an end. Many thousands of businesses could go bust as they run out of money and government help is withdrawn. But at least we won’t be in recession: because that ended last June and now we’re back in an era of economic growth.

No, it doesn’t make a lot of sense to me, either. The Covid crisis has exposed a deep problem with our official definition of a recession, used by government, Bank of England, Office of National Statistics and many others. It is defined as a period of two or more quarters of negative growth. So, by this measure, we were in recession for the first six months of 2020 — on the grounds that economy shrank by 2.9 per cent in the first quarter and by 19 per cent in the second quarter. However, we then climbed out of recession in the third quarter when growth rebounded by 16.1 per cent.

So far, so good. But then it starts to get a bit silly. GDP figures published by the Office for National Statistics this morning show that the economy managed to creep upwards by 1 per cent in the fourth quarter of 2020. If the Bank of England is right and growth falls again by 4 per cent in the first quarter of 2021, that will be one quarter of negative growth.

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