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The Bank of England is seeing signs of an “upturn” in the economy, its governor said on Monday, as he played down the significance of upcoming data 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 pointed to a “somewhat stronger growth story” ahead, although he also cautioned that trends in productivity and investment meant there was still a “very constrained” supply side of the economy.
If there proved to have been two successive quarters of contracting gross domestic product at the end of last year, the fall would be “very shallow”, Bailey told an audience at Loughborough University. “What I would put more weight on actually is the indicators we have seen since then have shown some signs of upturn.”
The Office for National Statistics on Thursday releases its first estimate of the economy’s performance for the final quarter of 2024. The economic report will be closely watched in Westminster as Prime Minister Rishi Sunak attempts to narrow the gap with Labour in opinion polls.
Last week the National Institute of Economic and Social Research said 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 by-election defeats on Thursday.
Tory 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 putting Sunak’s party 25 points behind Labour. The Redfield and Wilton Strategies survey put the Conservatives on 21 per cent nationally — their lowest figure since Sunak became prime minister.
The Tories are defending an 18,540 majority in Wellingborough and an 11,220 margin in Kingswood, but Labour is confident of seizing both seats on Thursday.
“We aren’t holding out much hope for either,” admitted one Tory strategist. Campaigning by senior Conservatives has been low profile.
“The Tories will hide behind the word ‘technical’ but it would be a big moment if the data shows we were in recession,” said one senior Labour official.
“Sunak’s big claim is that he knows how to run the economy, but if the ‘R’ word is being discussed in an election year, that’s very bad for him. We want to fight the election on the economy.”
Downing Street declined to comment ahead of the publication of the ONS data, but Sunak on Monday said: “At the start of this year I really believe the economy has turned a corner and we are heading in the right direction.”
Bailey’s comments came after a speech focusing on financial regulation, and he did not give any new steers on the outlook for interest rates. The Bank’s Monetary Policy Committee this month held interest rates at 5.25 per cent, but opened the door to cuts in borrowing costs this year, stating it first needed to see “more evidence” of inflation heading in the right direction.
The BoE lifted its growth projections modestly when announcing its latest rates decision, predicting the economy would expand by about a quarter of a per cent this year, up from a prior estimate of zero. It is forecasting 0.75 per cent growth for 2025.