The gilt yield curve is now inverted, with 10-year yields below three-month interbank rates. History suggests this is a warning that recession is very possible.
For example, the curve was inverted in 1973, 1979, 1988, and in 2006. On all these occasions a recession followed a few months later.
It is not, however, an infallible indicator. The curve also inverted in 1970, 1985 and 1997 and yet the economy continued to grow. And the lags between inversions and recession – even when they exist – can be long. The curve inverted in 1988 and 2005, it on both occasions we didn’t get a recession for another two years.