No need for panic, but this should spark the Bank and No 11 into action

That fervent apostle of modern free-market capitalism, the late US president Ronald Reagan, once famously remarked: ‘Recession is when your neighbour loses his job. Depression is when you lose yours.’

If that is an accurate description, then it’s hard to make the case that the British economy has suffered a recession.

Yes, the latest figures show we are now technically in just such a downturn – defined by the purists as two successive quarters of negative growth – with a 0.3 per cent dip in output in the final quarter of last year coming on the heels of a 0.1 per cent drop in the three months to October.

But virtually no one’s neighbour is necessarily losing their job at the moment. Quite the contrary: the official numbers show the economy is otherwise in rude health, with almost full employment and the number of vacancies standing at 932,000 in January, down from 1.16million a year earlier.

that’s why it’s fatuous for Shadow Chancellor Rachel Reeves to suggest the tories’ economic record is in ‘tatters’ and they have crashed the economy. Indeed, a cynic might well attribute such hot air to a desperate desire to create a diversion at a time when Labour’s deep-seated problems with anti-Semitism have rarely been more front of mind.

Of course, no one in government wants to see a stagnating or flat-lining economy. But when one considers the trauma Britain has lived through over the past four years, from the horrendous cost of the Covid-19 lockdowns, to the spiralling price of energy sparked by Russia’s war in Ukraine and the deadly interruption to global shipping through the Red Sea caused by houthi terrorists, we can be thankful there are not unemployment queues stretching around the block. as I have often noted before, Britain’s light-on-its-feet economy, with world-beating businesses in life sciences, aI technology, financial services and the creative industries, is capable of powering ahead with the right mix of investment and regulation.

We should not forget the latest output data, which shows the construction and services sectors driving a downturn, looks backwards, not forwards.

there are clear signs the economy is looking up in 2024. the number of mortgage approvals has increased as better deals for people with fixedrate home loans come through. Both the Nationwide and halifax’s ‘ housing indexes’ show house prices are on the up again, a development which should encourage construction firms to accelerate their building programmes.

Wage settlements averaging 6.2 per cent are comfortably outpacing inflation, which means people in work have more money to spend, their prosperity boosted by the one percentage point cut in National Insurance contributions which came through last month.

Meanwhile, both consumer confidence and business confidence are on the mend. as the Dutch financial group ING noted yesterday: ‘Green shoots are appearing and, most notably in services, are now firmly in expansion territory in sharp contrast to the eurozone.’

all that said, the fact we were in a technical recession in the last half of 2023 demonstrates the need for urgent action by both the Bank of England and the Chancellor Jeremy hunt.

the interest rate- setting Monetary Policy Committee is still fighting last year’s war on inflation. this week’s consumer prices index showed the rise in the cost of living stable at 4 per cent and likely to come down with a bump in the coming months as the distorting effect of the energy price- cap is stripped away. It shows the fight against higher prices is coming to an end.

Instead of crushing an incipient upturn – in the mistaken belief it is necessary to keep a lid on the cost of living – governor of the Bank of England andrew Bailey needs to act swiftly and cut the base rate from its harsh 5.25 per cent.

It is only by lowering rates that we can encourage consumers to spend, businesses to invest and stop the residential housing market from going into reverse just when it is beginning to show signs of life.

SIMILARLY, the Chancellor – having started the process of cutting taxes with £20billion of giveaways in his November statement – needs to carry on the good work in the March 6 budget, now just a few short weeks away. he should use the fiscal headroom he has at his disposal to ease the burden of high taxes on both consumers and business.

Just how potent such measures can be was illustrated by the news that business investment has climbed 1.5 per cent after several negative periods. this improvement was prompted – at least in part – by the Chancellor’s decision to make tax breaks on new plant and machinery permanent.

Messrs hunt and Bailey have the chance to restore growth in 2024 by slashing taxes and interest rates. that way the technical recession of recent months can prove to be a springboard for the economy to power into growth this year.