David Blanchflower
Professor of economics at Dartmouth College in the US and member of the MPC from 2006-09
Indicators that gave an early read to recession in 2008 are flashing red and suggest the UK is already in recession.
We know GDP growth was -0.2% in the second quarter of 2019, and if another negative quarter follows then that will fit the technical definition of a recession. The problem is that these GDP data get revised in subsequent years and we didn’t finally know until June 2009 that the UK entered recession in April 2008.
Early indicators of recession in 2008 were provided by a series of qualitative confidence surveys of business and consumers; they had all turned down sharply by spring 2008. These surveys have the benefit that they don’t get revised and are very timely. We already have data for August 2019 in some of the surveys and they are all trending down.
The IHS Markit/CIPS purchasing managers index (PMI) in July showed manufacturing and construction were already in recession and the services sector was close to it.
The Bank of England agents produce a set of scores on how businesses are doing on turnover, capacity constraints, employment and investment intentions, all of which have been tumbling for the last three or four months.
The European commission’s Economic Sentiment Index (ESI), which covers both consumers and firms has plunged throughout the summer and is at 92.5, slightly above its June 2008 level.
Of particular note are the reports of consumers in that EU survey. In the barometer of what consumers think the general economic situation in the UK will be over the next 12 months, a higher number is better, a lower number is worse. Since 1985 the series average is -12. In August 2019 the series fell to a low of -36; it was -34 in April 2008. Consumers are also expecting a big rise in unemployment.
Reading the minutes of the central bank’s monetary policy committee in August, the complacency was palpable. It seems to me the Bank of England has failed to spot the onset of recession, just as it did in 2008. What is it up to now? Yet again, it is fiddling while Rome burns.
