Are we in a recession?  It is an interesting question because nobody can know for sure.  A recession is defined as two successive quarters of negative growth.  Okay, but how do we know if, in the quarter we are in, the economy is shrinking?  Again, we cannot know this.  This is because the latest data we have is for February 2022… and it showed an unexpected fall in growth to just 0.1 percent.  In the event that growth turned sufficiently negative in March 2022, then the first quarter of 2022 as a whole might have been negative.  And in the event that this negative trend continued through April and on through May and June 2022, then we would indeed be in a recession… but we will only know for sure when the data is published in August.

It is on this kind of uncertainty that economic policy is set.  On top of the slowdown in growth – which may have improved or worsened, but nobody knows yet – comes data for March showing a dramatic fall in retail spending, largely resulting from rising food and fuel prices.  Is this because households and businesses can no longer afford to buy, or are they reining in their spending in anticipation of higher prices in future?  Again, we do not know.  Certainly, food and energy retailers have warned that prices will have to rise in future.  At the same time, households and businesses face higher local and national taxes and utility bills.  And so, falling sales is likely a combination of both prices that have already risen and the expectation of price rises to come.

Crucially though, the lens through which economic policy makers are viewing the economic clouds gathering on the horizon is a financial lens which looks back fondly on the sunlit uplands of the pre-2008 years as some kind of normal…

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