What Does A Recession Mean For Me?
As the UK’s economy slows, it’s easy to be discouraged, worried, and filled with dreadful feelings of uncertainty. After all, families and households across the UK are facing record-high fuel prices as we head into the fall and winter months; their wallets are feeling the squeeze at home, at the petrol pump, and during their weekly shop.
With the Bank of England’s announcement that the country is expected to enter a year-long recession by Christmas, you’re probably starting to wonder what a recession in the UK means for you.
There’s no way to sugarcoat the fact that dealing with a recession is neither fun nor easy. However, if you make wise decisions, stay prepared, and consider the numerous ways your existing finances can be impacted, you’ll be able to navigate the recession with confidence. After reading this blog, you’ll understand what a recession is, why it’s happening, and what strategies you can use to prepare yourself.
What Happens in a Recession?
During a recession, the economy shrinks for two quarters in a row. Typically, a nation’s economy will grow most years, even if only incrementally. And while economies expand and contract, periods of prolonged declines are abnormal, and thus identified as recessions.
When an economy is growing, there are typically more jobs and opportunities for people, and increased consumer and corporate spending. This means there’s more money in everyone’s pockets: everyday people are earning wages, businesses are profitable, and taxes are flowing to the governments. This is good for everyone, as people can find work, make money, and the government can provide tax relief or fund and improve public services like transit, healthcare, and more.
However, during a recession, fewer job opportunities exist, and businesses may even lay employees off to lower costs. As a result, people and businesses spend less, reducing the amount of tax money headed back to the government, which in turn may need to implement austerity measures.
What Causes Recessions, and Why Are Prices Going Up in the UK?
In a global economy, countless factors can contribute to a recession. In this instance, some of the key drivers of the UK recession are the skyrocketing energy prices being seen across the country and Europe, which are expected to push inflation in the UK as high as 13%. Additionally, lingering supply-chain issues first encountered during the pandemic have contributed to inflation in the UK, which consumers are seeing at grocery stores and petrol stations.
The Bank of England aims for an inflation rate of 2%, which is a stable level of inflation. The higher inflation goes, the more detrimental it is to consumers. However, if inflation is too low, it can cause businesses and consumers to cut their spending and expenses, resulting in things like job loss.
Frequently Asked Questions About the 2022 UK Recession
News outlets chatter about the looming recession each day, but they still might not answer your lingering questions. Fortunately, we have the answers you’re looking for:
Will There be a Recession in 2022?
Unfortunately, yes; there’s almost certainly going to be a recession in the UK in 2022. The Bank of England announced in early August that the UK is headed toward a recession by the fourth quarter of 2022, and the recession is anticipated to last through the end of 2023.
How Long Do Recessions Last in the UK?
The 2008 financial crisis, also known as the Great Recession, was the deepest recession the UK experienced in the last half century. It lasted for five consecutive quarters—over a year. This is approximately the same length the Bank of England expects this recession will last.
Recent Recessions in the UK
The UK entered a recession during the COVID-19 pandemic, as lockdowns put many businesses in tricky situations and pushed many people out of work. Prior to that, the most recent recession was the 2008 financial crisis.
Should You Pay Off Your Debts or Save During a Recession?
Whether or not you should pay off your debts ahead of a recession depends on several things. Your income stability and the types of debt you carry will make some actions more suitable and other actions less wise.
For example, credit card debt accrues interest quickly, and it’s usually best to pay that off before going into a recession. However, hastily paying off other forms of debt can weaken your savings and ultimately put you in an even more unstable financial position heading into a recession.
It’s important to protect your savings, as they’re one of the best ways to prepare yourself for a recession. Savings can help you if you lose your job or are simply facing a month where finances are tighter. In that case, your emergency savings fund can help you maintain crucial payments like your rent or mortgage.
If you want to learn more about what to do with your debts during a recession, check out our resource, Should You Save or Pay Off Debt in a Recession?
How Can You Stay Prepared During a Recession?
Staying prepared during a recession will look different for everyone. For example, some people might benefit most from building an emergency savings fund, while others might benefit more from continuing their education or making and following a monthly budget.
Ultimately, it will also depend on what will make you feel the most secure. If you think you need to do more to feel secure going into the recession, check out our guide on how to stay prepared during a recession.
How Have Things Changed Since the Last Recession in the UK?
Overall, the crucial difference between the recession currently facing the UK and what we experienced in 2008—the last comparable recession—is that we’re more connected than ever. Our connectivity lets us share advice and build tools that help us all to get through this thing—together.
While the threats of a recession are mostly the same, the tools you have for navigating a recession are vastly superior to what was available to everyday Brits during the Great Recession. Resources like the one you’re reading right now, countless websites, and apps like Pave can help you stay organised and make a plan.
Pave can help you keep track of your upcoming bills and your bank account balance while also sharing personalised action items that can help to improve your credit score. To see why over 300,000 people across the UK have joined the Pave party, download the app from the App Store or Google Play today.