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The Bank of England is seeing signs of “recovery” in the economy, its governor said on Monday, downplaying the importance of forthcoming data that some analysts say will show the UK was in a technical recession at the end of last year.
Andrew Bailey said the BoE’s latest forecasts point to a “somewhat stronger growth story” ahead, although he also warned that trends in productivity and investment mean there is still a supply side.” very limited” in the economy.
If it were shown at the end of last year that there had been two consecutive quarters of contraction in gross domestic product, the fall would be “very shallow”, Bailey told an audience at Loughborough University. “What I would put more weight on actually is that the indicators that we have seen since then have shown some signs of recovery.”
The Office for National Statistics will publish its first estimate of the economy’s performance for the final quarter of 2024 on Thursday. The economic report will be closely watched in Westminster as Prime Minister Rishi Sunak tries to narrow the gap with Labor in opinion polls.
The National Institute of Economic and Social Research said last week that the UK may have slipped into a technical recession at the end of 2023, with two consecutive quarters of contracting growth.
As well as the GDP report, Sunak faces the prospect of two potential byelection defeats on Thursday.
Conservative officials privately admit the party is set to lose its two seats in Wellingborough in Northamptonshire and Kingswood near Bristol, with a new national opinion poll placing Sunak’s party 25 points behind Labour. The Redfield and Wilton Strategies poll puts the Conservatives at 21% nationally, the lowest figure since Sunak became prime minister.
The Conservatives are defending a majority of 18,540 in Wellingborough and a margin of 11,220 in Kingswood, but Labor is confident of winning both seats on Thursday.
“We don’t have much hope for either of them,” admitted one Tory strategist. The campaign led by senior Conservatives was low profile.
“The Conservatives will hide behind the word ‘technical’, but it would be a great moment if the data showed we were in recession,” a senior Labor official said.
“Sunak’s big claim is that he knows how to manage the economy, but if the ‘R’ word is discussed in an election year, it’s very bad for him. We want to fight elections on the economy.”
Downing Street declined to comment ahead of the publication of the ONS data, but Sunak said on Monday: “Earlier this year I really believe the economy has turned the corner and we are going in the right direction.”
Bailey’s comments came after a speech focused on financial regulation and provided no new guidance on the interest rate outlook. The Bank’s Monetary Policy Committee this month held interest rates at 5.25% but opened the door to cuts in borrowing costs this year, saying it needed to first see “further evidence” that inflation go in the right direction.
The BoE raised its growth projections slightly when it announced its latest rate decision, predicting the economy would expand by about a quarter of a percentage point this year, up from a previous estimate of zero. Growth of 0.75% is expected for 2025.