Bank of England governor Andrew Bailey today told MPs that the UK is suffering a "very small recession" that is already showing "signs of an upturn".
Speaking to the Treasury committee, Bailey said: "We’ve had this period of rapid disinflation, we’ve had a restrictive monetary policy but in all the measures we use the economy appears to be at full employment.
“That is a very good story. We don’t want unemployment rising rapidly. It has happened in the past when we’ve taken these sorts of actions.
“So I would just say against a lot of talk of what we think is going to be a very small recession, we think the economy is already actually showing distinct signs of an upturn."
Bailey added that the central bank is looking for signs of a slowdown in service prices, wage increases and the labour market before bringing through any interest rate cuts.
Inflation will fall to 2% in Spring, Bailey said, but warned it won't stay there for long due to the volatility of energy prices.
Bailey, along with deputy governor Ben Broadbent and external committee members Swati Dhingra and Megan Greene, were questioned by MPs over interest rate cuts and inflation.
The Treasury committee said: "Figures released last week show the rate of inflation (CPI) remained steady at 4% in January – despite many economists forecasting an increase.
"This has led to heightened speculation that the Bank of England may consider cutting interest rates from the summer."
MPs quizzed the economists on the future of inflation, whether risks to tightening monetary policies have changed since November and the likely effects of wage growth.