Bank: UK ‘already in recession’

The Bank of England admitted today that the economy is already in a recession which will continue through next year. The contraction in the UK economy is likely to be deep but relatively short-lived, similar to those experienced in Sweden, Finland and Norway in the 1990s, said deputy governor Charles Bean.

In its quarterly inflation report the Bank said that the UK had entered a period of recession in the middle of 2008. It also forecast that inflation will decline to one per cent by 2010 - well below its two per cent target.

Bank of England governor Mervyn King said that this could lead to further interest rate cuts, if the Bank is to keep inflation at its target rate during the next two years. "We are certainly prepared to cut bank rate again if that becomes necessary," King said.

But King rejected criticism that the Bank of England was caught unawares by the crisis. The Bank had acted to cut rates so sharply "because the facts had changed," he said.