News that the UK will enter recession at the end of 2023 has raised concerns about the potential impact on borrowing, jobs and wages.
Gross domestic product (GDP) shrank by 0.3% in the fourth quarter of last year, according to the latest data from the Office for National Statistics (ONS). Following negative growth of 0.1% between July and September, two consecutive quarters of negative growth means the UK is technically in recession.
Problems caused by a “shrinking economy” could “trickle down” into our daily lives, the Times Money Mentor said. However, the BBC said that the “pain of a recession” is not usually felt equally across society, with benefits recipients and those on fixed incomes particularly suffering “when governments decide to cut spending on public services.” He said that he often falls into this situation.
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What is a recession?
A country's “economic success” is measured by its GDP, which is based on factors such as how much its citizens spend and what it exports, Which? said. A decline in GDP for two consecutive quarters is defined as a recession.
Mr Ambias said a recession could be caused by “many factors”, but a “significant” factor would be if borrowing costs and interest rates “rose faster than expected”.
The Bank of England raised interest rates 14 times between December 2021 and August 2023, from a record low of 0.1% to the current 5.25%. Interest rate hikes have increased borrowing costs and reduced consumer spending.
Threat of credit crunch
This Is Money says that borrowing rates often fall when the economy isn't growing, so being in a recession “could ultimately be good news for mortgage holders.” said.
However, while mortgage lenders have been cutting interest rates in recent weeks, many are now raising rates again amid concerns that the cuts have been “too drastic”.
According to the Skint Dad blog, banks tend to be “more cautious” in lending money during recessions. This can make it “difficult” and “more expensive” to get credit cards, loans and mortgages.
Job losses and wage cuts
The Telegraph reported that a contraction or slump in the economy could mean “lower pay and more redundancies” as businesses struggle.
Employees who keep their jobs could face “real wage reductions” to cover “soaring utility bills and food prices.” Which one? I said.
During these uncertain times, it's “prudent” to try to build an emergency cash fund to cover three to six months' worth of expenses to “soften the blow to income,” says Ambias. he said. Experts also advise people to try to pay down their debts and take out insurance “in case the worst happens”.
Is it good news for investors?
This Is Money says that while a recession is “generally judged to be bad news” for investors, the GDP figures are backward-looking and cover a period that is already “showing up” in corporate performance. Stated.
The most important thing for investors is “What is happening now and what will happen in the future?”
The Telegraph said a recession may call for a more “defensive style” of investing, which means picking stocks and funds that are “usually resilient at all points in the economic cycle”.
How long will the recent recession last?
Analysts say the recent economic downturn has been mild. The UK economy still grew by 0.1% throughout 2023, ONS data shows.
Britain may be “already emerging from this recession”, the Spectator said. The Center for Economics and Business Research predicted last week that “the recessionary pressures experienced in the second half of 2023 are not expected to continue into 2024.”
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