Bank of England U-turn over ‘dire’ recession forecasts

Andrew Bailey will make a humiliating turnaround next week as he is expected to backtrack on ‘grossly exaggerated’ predictions about the UK’s looming recession.

The Bank of England will release its latest quarterly monetary policy report on Thursday, detailing the projections used by policymakers to set interest rates.

In November, Bailey warned that the country is facing its longest recession on record and rising unemployment. The Bank said the UK was on the verge of a painful slump that could put an additional 1 million workers out of work.

But ahead of next week’s update, a top fund manager said Bailey will backtrack on his comments, with a “relatively improved outlook.”

Toscafund chief economist Savvas Savouri said: “The BoE’s grossly exaggerated expectations for UK unemployment and inflation contributed in no small part to the gloomy GDP forecasts it published in its August and November 2022 Monetary Policy Reports. Expected that Bailey suggests the UK is still facing a recession, but one that was shorter and milder than the one he outlined last year. We expect the length of his recession forecast to be cut in half – a ‘softer landing’.’

But as a sign of the skepticism with which top economists view Bailey’s performance, Savori said “errors in the bank’s judgment will undoubtedly persist.”

Philip Shaw, chief economist at financial services company Investec, also expects Bailey to put the gloomy forecast behind him.

Ahead of Tuesday’s report, he said: “One feature will probably be that the Bank will not expect a recession as long as it did in November, when it pointed to a two-year slump. This would be partly due to a slightly less gloomy economic backdrop, but also to a decline in the yield curve on which the projections are based.