The UK is on the edge of a recession, but are we ready for a downturn?

The Bank of England Credit: PA

The UK has experienced a recession roughly once every decade since the Second World War.

The last downturn was in 2008 but recessions are not like buses, there’s no obvious link with the passage of time.

A recession isn’t due “any moment now” but, as it happens, the UK sits on the cusp of of one.

Economic growth here and abroad is slowing and the fog around what sort of Brexit, if any, the UK will experience remains dense.

Last month, when the Office for National Statistics (ONS) announced that the UK economy had contracted between April and June, the Chancellor insisted there was no need for concern.

Sajid Javid said he thought a technical recession - when Gross Domestic Product (GDP) falls for two successive quarters - would be avoided.

Javid was betting on a bounce back.

On Monday morning we’ll find out if he got it when the ONS publishes its GDP monthly estimate for July.

The early signs aren’t good; the survey data over the summer has been awful.

If the number is negative it will amplify concern and heap pressure on the government - not least because most economists believe that an abrupt, no deal departure from the EU, of the sort Boris Johnson countenances, would be highly damaging for the economy.

The Resolution Foundation believes the risk of recession is the highest it has been since 2007. Credit: The Resolution Foundation

With immaculate timing, The Resolution Foundation, a think-tank, has declared that the UK isn’t ready for a recession.

The Foundation points out that with Bank rate still close to zero, the Bank of England won’t be able to support the economy in the way it has in previous downturns.

The Foundation argues that there’s less room for the Bank to cut interest rates and that its policy of quantitative easing, which was unveiled in March 2009, will be of only limited effectiveness.

Chancellor Sajid Javid has said he believes a recession can be avoided. Credit: PA

Quantitative easing, for the uninitiated, is the name given to the process whereby the Bank of England creates money on a colossal scale and uses it to buy Government debt with the aim of lowering long-term interest rates.

“The Bank of England in particular used powerful policy tools to fight the last great recession – from slashing interest rates to injecting billions into the economy via quantitative easing," James Smith, Research Director at the Resolution Foundation said.

"But ultra-low interest rates now mean these tools are blunted.

"Our plans for fighting the next downturn have not been sufficiently updated to recognise this reality.”

The Bank of England normally cuts policy rates during a recession. Credit: The Resolution Foundation

The Foundation calculates that, with all the tools at its disposal, the Bank could at best manage the equivalent of a 2% interest rate cut in another recession.

As it point out, that’s a far short of the average cut of 5% that has occurred in previous recessions.

Recessions, when they happen, come in different shades and scales, and are caused by different factors but they always cause unemployment and damage living standards.

Action by central banks and governments cannot avoid recessions but it can dull the pain.

During the last financial crisis, the government cut VAT and launched a bail out the banking system, while the Bank of England reduced the Bank rate to a record low level.

The Resolution Foundation says, given the Bank of England’s weaker position, the Government should be preparing to play a more prominent, explicit role in the next downturn.

A recession would hit the poorest in society the hardest. Credit: The Resolution Foundation

With the deficit under control and borrowing costs low, The Foundation argues the government is in a position to respond in case of an emergency.

It advises the Government to change the tax and benefits system to better support families and businesses who find themselves affected by a downturn.

These are often referred to as “automatic stabilisers,” designed to kick in and support the economy in a downturn.

The Foundation believes they need strengthening, when not “if” there’s another recession.

The Foundation says that the consequences of not preparing adequately is that the downturn, when it does occur, will be deeper and more prolonged than is necessary.

This matters not least because sharp downturns tend to hurt the poorest in society.

The Foundation calculates that those on lower incomes are more likely to lose their jobs in a recession and are particularly exposed now.

Wage growth in the last decade has been weak, low income households have struggled to rebuild their savings and find themselves spending a larger part of the earnings on everyday essentials.

Put another way, they are less well placed than they were in 2008 to cope with an economic shock.