Three centuries of UK business cycles: what lessons for today?

Stephen Broadberry, Jagjit Chadha, Jason Lennard, Ryland Thomas document three centuries of business cycle in UK (full paper is here):

Evidence from 300 years of peaks and troughs in UK economic activity reveals that while the frequency of recessions has declined to a historical low, the duration and amplitude have not. A recession may result from a variety of causes, with a typical cost to the economy of 4% of initial GDP.

What does this mean for recent recession:

Where does the prospective recession of 2022-23 stand in comparison with the historical average? The GDP projections in the November 2022 Monetary Policy Report were produced under two conditioning assumptions for monetary policy: one based on an assumption of a constant Bank Rate of 3%; and another based on a path where Bank Rate rose in line with the then elevated levels of market expectations.

The 2022-23 recession implied by the projection under market expectations was initially shallower but more protracted than the historical mean of the past three centuries. But it is quite similar to some of the recessions observed over the past 100 years, reflecting the increased persistence of recessions from the 20th century onwards (Figure 3). In particular, the 2022-23 recession looks similar in scale to the recession of the early 1990s over the first two years, but then similar to the protracted recoveries from the Great Depression and the global financial crisis.

The protracted recovery in the Bank of England projection is based on an assumption that potential supply growth remains weak relative to the trend growth rates enjoyed between the end of the Second World War and the global financial crisis.

The weakness of growth and productivity in the aftermath of the recessions since 2007/08 is a key policy issue (Chadha and Samiri, 2022). Perhaps those recessions have led to more scarring or ‘hysteresis’ effects on both the level and rate of economic growth. That would imply that acting to prevent recessions is a key part of avoiding weak longer-run growth in living standards.


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