I find it surprising because (as last week’s Inflation Report from the Bank of England confirmed) there is little sign of recession in any of the economic indicators. The reason for the question, of course, is that recession talk is rife in the United States and if the US sneezes (so many believe) we all catch cold.
One problem is that the R-word has many different meanings. Clearly, growth has slowed sharply in the US, and confidence has taken a nosedive. That is not a recession, which happens (in my view) only when the level of output is lower than a year earlier.

A respectable alternative definition is two consecutive quarters of negative growth. Either would dent a lot of business plans, outside the US as well as inside, but would not inevitably drag the UK into recession.Recessions occur when demand dries up, because businesses and households stop spending. In each of the recent UK recessions there was an obvious external cause for that. In 1975 and 1980 inflationary overheating was exacerbated by huge oil price shocks The 1990 downturn was the aftermath of a runaway boom.

In all cases inflation was a problem, and it was the rise in interest rates to curb inflation that brought on recession. High interest rates cause households to postpone discretionary spending and/or businesses to put investment plans on hold.An increase in UK interest rates today is highly unlikely. We have just had the first reduction in this cycle, and inflation is so low that the Bank of England may be called on to account for undershooting its target. So what will cause demand to dry up in the UK? It certainly won’t be government action, with an election in the offing, a massive expansion of public spending already planned, and a fiscal surplus giving the Chancellor scope for more pre-election hand-outs if need be.So those concerned about the effect of the US downturn on the UK must either be worrying about an export collapse, or they must fear a massive and spontaneous collapse of business and consumer confidence in the UK.The arithmetic of the export collapse hypothesis simply does not add up. Only 15 per cent of UK exports go to the US, accounting for 41/2 per cent of UK output. Even if the US suffered a sharp downturn, with demand falling by, say, 2 per cent this year, the trade-related impact on UK firms would be no more than 0.1 to 0.2 per cent, according to calculations by PricewaterhouseCoopers that take into account possible policy response. This is not the stuff of which recessions are made.The only remotely plausible UK recession scenario would thus have to invoke a mixture of contagion and stock market collapse Contagion was a vogue word in the 1998 Asian crisis.