What would a recession mean for the UK?

“The data chimes with widespread warnings that the economy faces a prolonged period of low growth, caused by a cost of living crisis that is only forecast to intensify in the months ahead as energy bills rise to stoke inflation further,” reported Sky News.

City A.M. said: “Firms have retrenched in response to Russia’s invasion of Ukraine, high inflation and ongoing supply chain disruption souring the trading environment, dampening the UK’s growth prospects.”

Consumers are rapidly reducing their spending in the face of a “once in a generation” cost-of-living squeeze, George Lagarias, chief economist at accountancy firm Mazars, told The Guardian.

“For an economy where consumption is so central, the signs going forward are disconcerting. Technically, we may not yet be in a recession, but for many consumers it certainly feels like one.”

What would a recession mean for the country?

A recession is defined as two successive quarters of decline in gross domestic product (GDP). While that may sound abstract it has real-life consequences on everything from job prospects and housing to investments.

“Businesses are likely to try and save money during a recession, meaning jobs could be lost, and with spiralling inflation and energy price hikes, wages may be unable to cover the cost of everyday essentials,” said Unbiased.

The global financial crisis of 2008 resulted in UK unemployment levels reaching 10%. However, “no one can predict the severity or the length of [a recession], making it difficult to outline the tangible impact on UK workers”, said the financial advice site.

Forbes reported that with more people unable to pay their bills during a recession, “lenders tighten standards for mortgages, car loans and other types of financing”. This means you may need a better credit score or a larger down payment to qualify for a loan than would be the case during more normal economic times.

Investments in assets such as stocks, bonds and property can lose value in a recession, cutting income and savings, and denting retirement funds too, it added.

As well as the effect on lower-skilled and lower-paid workers, recessions “also impact young people disproportionately, as we saw from the recession in 2008”, said HuffPost UK.

Are there any positives?

“There are arguments that recessions are part and parcel of the economic cycle,” said the i news site. “They can lead to a clearing out, or what some economists call a reset or ‘correction’.”

This can have knock-on positive effects for some people or sectors. High inflation, for example, such as that seen in the early 1980s, usually leads to higher interest rates, which is good for people with savings.

The recession of the early 1990s, meanwhile, led to lower house prices and interest rates, allowing Generation X and younger Babyboomers to get on the property ladder.

Article source: https://www.theweek.co.uk/recession/957043/what-would-a-recession-mean-for-the-uk