What is a recession?

A quick and simple definition of a recession (used in the UK and EU) is – negative economic growth for two consecutive quarters. The US uses a more comprehensive definition of a recession which includes the NBER examining a range of data to see whether there is a significant decline in economic activity, measured by duration, depth and diffusion.

Are recessions caused by external factors?

Yes, according to modern economic thought. Prior to the late 19th century, most economists believed recessions were caused by external factors, like wars or weather events. Neoclassical economic thinkers developed the idea of business cycles, alternating peaks and troughs of economic expansion and contraction.

What is a recession in the UK & EU?

In the UK and EU a recession is defined as a period of negative economic growth for two consecutive quarters. This means there is a fall in national output and national income for six months. Invariably the fall in GDP will involve higher unemployment, lower retail sales and an increase in government borrowing.

How does a recession affect inflation?

A recession is a period of negative economic growth. Deflationary pressures imply a fall in aggregate demand. This leads to a lower rate of growth or a fall in GDP and consequently a lower inflation rate. Strong deflationary pressures may also cause inflation to become negative. i.e. a fall in prices known as deflation. definition of deflation