Arbuthnot Banking : The past four UK recessions compared, and no recession expected on Brexit

The past four UK recessions compared, and no recession expected on Brexit

Date: 10^th September 2018

The past four UK recessions compared, and no recession expected on Brexit
In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, analyses the last four UK recessions:

• The recessions of the mid-1970s, early-1980s and early-1990s were broadly characterised by high interest rates intended to control inflationary pressures.
• Specifically, disruptive industrial action and the first oil price shock were the main distinguishing features of the mid-1970s recession. Inflation was nearly 25% in 1975.
• The early-1980s recession was caused by sharply higher interest rates intended to control entrenched inflationary pressures, which were exacerbated by the effects of the second oil price shock. A rapidly appreciating currency damaged external competitiveness resulting in a significant drop in manufacturing output. The unemployment rate peaked at 11.9% in 1984 (LFS measure).
• The early-1990s recession was triggered by aggressive monetary tightening in the late 1980s in order to cool the overheating economy and prolonged by membership of the EU's Exchange Rate Mechanism (ERM). It was noted for the 'bust' in the housing market.
• In contrast, the Great Recession of the late 2000s was triggered by the financial crisis of 2007-08, which began in 2007 with a crisis in the US subprime mortgage market and developed into a full-blown international banking crisis. It was the severest post-war recession and the Bank responded with aggressive cuts in the Bank Rate and the introduction of Quantitative Easing. The 'credit crunch' was a feature of this recession.

In addition:

• The Markit surveys for August were mixed. Services were stronger, but manufacturing and construction were weaker.
• Both the MPC and the Governing Council of the ECB make their next monetary policy announcements on 13 September. No changes in policy are expected.

Ruth Lea said, 'The last four recession were broadly triggered by high interest rates in response to high inflation or, in the case of the Great Recession, a financial crisis. The chances of recession being triggered by high inflation seem remote and there are no signs the Bank wishes to rapidly escalate interest rates. And it seems reasonable to assume the tighter regulation and closer supervision of the banks in recent years should prevent a repeat of the late 2000s financial cataclysm. There is, however, speculation that a 'disorderly' Brexit, however defined, may trigger recession.
It is not unreasonable to anticipate some Brexit-related disruption which could impact on GDP growth - even to the extent that GDP may slip back in one or two quarters. But this should only temporary, assuming no damaging unforeseen circumstances, with relatively little impact on unemployment. Therefore, a recession in the sense of a prolonged and damaging hit on GDP and employment, as in the mid-1970s, early-1980s, early-1990s and the Great Recession, seems unlikely.'
For full story: http://www.arbuthnotgroup.com/economic_perspectives_group.html

Press enquiries:

Arbuthnot Banking Group PLC:

Ruth Lea, Economic Adviser
07800 608 674, 020 8346 3482
[e-mail]
Follow Ruth on Twitter @RuthLeaEcon

Maitland:
Sam Cartwright
020 7379 4415
Jais Mehaji
020 7379 5151
[e-mail]

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