The UK is in a recession, the Bank of England said today.
In its quarterly inflation report, the bank said the economy probably entered a recession in the second half of the year and is likely to begin its recovery towards the end of next year.
‘There has been a marked deterioration in the outlook for domestic and global economic activity,’ said the report. ‘Instability in banking and financial markets intensified to levels not seen for almost a century.
‘The economy probably entered recession in the second half of 2008 and output is likely to contract further.
‘Consumer spending faltered in the second quarter under the weight of tighter credit and the squeeze on household budgets. Residential investment continued to fall rapidly and prospects for business investment weakened.’
The report said tightening supply of money and credit, falls in assets prices and subdued growth in incomes were drivers having a negative impact on the economy.
However it also said reductions in the bank rate, a gradual expansion in credit supply, lower global energy and food prices, the low cost of sterling and government spending would work to counteract the economy's problems.
The report said the bank rate is expected to fall from an average of 4% this quarter to 2.75% in the second half of next year, before picking up to around 4% again by 2011.