UK Recession Risk Only One in Ten: Bank of England

15 November 2001

Despite the rise in the number of unemployment claimants – the first in twelve months – Bank of England deputy governor Mervyn King rates the chances of an official UK recession as only around one in ten.

Dismissing the likelihood of recession as “still very small”, King quantifies the probability that the nation will see a contraction in activity over the next twelve months at around 10%.

The overall unemployment claimant count in October rose by 4,300 to 951,100, reported the Office for National Statistics. This equates to 3.2% of Britain’s workforce, the highest level in nearly three years.

And although the consensus among economists is that unemployment will continue to rise as recent layoffs filter into the official figures, joblessness is expected to peak far below the levels of the UK's last recession in the early 1990s.

Nonetheless, any significant increase in the jobless count could trigger a slowdown in consumer spending and the housing market as Britons become more reticent about borrowing in order to spend. But consumer spending and house price growth are both predicted to remain positive.

The Bank of England's quarterly Inflation Report published Wednesday estimates that – assuming no change in interest rates – the risk of underlying inflation exceeding the government’s 2.5 per cent target in two years’ time outweighs the risk that it will be lower.

This probable rise in inflation, deputy governor King believes, may arise from the fall in sterling from its present unsustainable level.

News source: Financial Times