Confusion over recession definition

7 October 2008 11:11am

As a report by the British Chambers of Commerce (BCC) claimed claims the UK is already in a recession, attention will again turn to how and when an official UK recession would be declared.

According to economists, there are two main definitions of a recession, although experts appear to be split over which is the most accurate.

Until the current downturn began, it had been more than 15 years since the debate last reared its head, given that the economy had enjoyed one of its longest ever spells of continued growth.

But as the gloomy BCC findings confirm, this golden era has come to an end.

The most widely used definition of a technical recession is where there have been two or more consecutive quarters of falling gross domestic product (GDP).

For example, if GDP declined in the first three months of the year compared to the previous quarter and then fell again in the second quarter compared to the first quarter, the economy would commonly be described as being in recession.

But there is an alternative definition which some experts believe is less flawed - a full calendar year of negative output.

It is thought that this is a more difficult definition to meet, but evens out the quarterly volatility.

Paul Dales, economist at Capital Economics, suggested in July that the UK may have already seen its first quarter of negative growth.

"The most widely used definition is the two consecutive quarters of growth because it is more timely," he said.

"You are comparing events of three or six months ago, rather than a year ago."

It is also most commonly used in economies across the globe.

In the UK, the worst recessions since the Second World War II were in 1974, 1975, 1980, 1981 and 1991.

The biggest post-war fall in annual GDP was recorded in the 1980 recession, when it dropped by 2.1%, according to the Office for National Statistics.

In the last recession the UK experienced, in 1991, the economy shrank in three consecutive quarters and annual GDP fell 1.4% compared to the previous year.

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