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

Bank of England boss Andrew Bailey set to stage U-turn as he is expected to row back on ‘grossly exaggerated’ forecasts about UK’s looming recession

Andrew Bailey will stage a humiliating U-turn next week as he is expected to row back on ‘grossly exaggerated’ forecasts about the UK’s looming recession.

The Bank of England will publish its latest quarterly Monetary Policy Report on Thursday setting out the projections used by policymakers to set interest rates.

In November, Bailey warned the country faces the longest recession on record and soaring unemployment. The Bank said the UK was at the start of a painful slump that could leave an extra 1m workers jobless.

Under pressure: Bank of England boss Andrew Bailey will stage a humiliating U-turn

But ahead of next week’s update a top fund manager said Bailey will backtrack on his comments, producing 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 way to the dire GDP forecasts it published in the Monetary Policy Reports of August and November 2022. Expect for Bailey to suggest the UK still faces recession, but one shorter and milder than the one he had outlined through last year. We expect the length of his recession forecast to be cut in half – a ‘softer landing’.’

But in a sign of the scepticism with which top economists view Bailey’s performance, Savouri said ‘flaws in the Bank’s judgement will undoubtedly persist’.

Philip Shaw, chief economist at financial services firm Investec, also expects Bailey to move away from the gloomy forecast.

Ahead of Tuesday’s report, he said: ‘One feature will probably be that the Bank will not project as long a recession as it did in November, when it pointed towards a two-year slump. This would partly reflect a slightly less gloomy economic background, but also a fall in the yield curve on which the projections are conditioned.