UK will avoid a recession this year: but what does one mean for your money?
Chancellor Jeremy Hunt announced Britain will avoid a recession this year. But slow growth and rising prices are still putting our money under serious strain. We explain what to do
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Chancellor Jeremy Hunt announced in his Spring Budget that better-than-expected forecasts mean Britain will avoid a recession this year.
It comes after a spate of redundancies in the tech and retail sector in January and the Bank of England warning last year that the UK could go into a recession from the fourth quarter of 2023.
Hunt said on 15 March: "Today the Office for Budget Responsibility forecast that because of changing international factors and the measures I take, the UK will not now enter a technical recession this year."
But slow growth and rising prices are still putting our money under serious strain. We explain how you can protect your finances from the impacts of near-recession conditions.
What is a recession?
Every month, the Office for National Statistics (opens in new tab) publishes details of the UK’s gross domestic product (GDP). In simple terms, the GDP is the size of a nation’s economy, and basically outlines how much is being spent, both by households, the government and international investors.
If GDP is going up, it means the economy is growing, while if it falls it means the economy is shrinking.
A recession is defined as being two consecutive quarters of falls in GDP. So if the GDP for January to March fell from the previous quarter, and then the GDP for April to May also fell, then we would be in a recession.
GDP shrinks, broadly, because people aren’t spending as much money. That means that businesses start to struggle. Because their sales are going down, they are making less revenue, which can put jobs under pressure. Recessions tend to see an uptick in job losses.
The challenge isn’t simply the recession though, but also inflation. The prices we pay for the goods and services we buy are rocketing, whether that’s things like energy bills, petrol costs or our food shopping.
When economic growth is slow, but inflation is rocketing, this is called stagflation. It’s a double whammy ‒ household incomes aren’t improving (and may actually be falling if they lose their job) while their outgoings increase, putting their finances under greater pressure.
That means having to make difficult choices about where you spend money, or face the prospect of dropping into ever deeper debt.
Will there be a recession in the UK?
Some economists argue that if we aren’t already in a recession, we soon will be.
The report from the NIESR argues that the UK economy will be entering a recession in the third quarter of 2022, and will remain in recession until the first quarter of next year. Given the third quarter started in July, that would mean we are technically already there.
It’s worth pointing out that the NIESR is far from the only ones making this argument. Danny Blanchflower, a former member of the Bank of England’s Monetary Policy Committee ‒ which sets interest rates ‒ recently told the Today programme that “The UK in all likelihood is already in recession”.
The two most recent months for which the ONS has published GDP data ‒ April and May ‒ both showed falls. While this isn’t confirmation that a recession is already here, it does highlight the economic difficulties we are facing.
However, others argue that while the economy will grow less than previously expected this year, the UK may avoid falling into a full recession. The latest forecast from EY Item Club predicts that GDP will grow by 3.7% this year, down from the 4.1% previously predicted, followed by 1% growth next year, which is a downgrade from the 1.9% forecast last time.
According to Hywel Ball, chair of EY UK, while the outlook for the economy is gloomier than back in the Spring, the economy should be able to “eke out growth” over the rest of the year and avoid a recession.
What’s clear is that even if we avoid recession status, the economy is in a tricky spot.
How to protect your money from a recession and stagflation
With a near-recession seemingly upon us, and likely stagflation too, it’s important for all of us to take stock of our finances. There are certain things that we can all do which can protect our money from the challenges ahead.
The first is to review how and where we are spending money. With prices going up seemingly across the board, it’s crucial to establish whether you are getting value from the money you spend.
For example, one of the biggest monthly outlays millions of households pay is the mortgage. Yet new figures from the Financial Conduct Authority this week suggested that thousands of people could save significant sums by switching to a new mortgage rate. Given rates are only likely to increase in the months ahead, moving now could mean even greater savings.
This strategy can be followed for all of your borrowing. If you are perennially in your overdraft, then moving to a bank account which offers an interest-free overdraft will help you save cash, while if you have credit card debt then moving it onto a 0% balance transfer card will mean you can pay it off in stages without incurring interest charges.
Reviewing all of your spending like this, to see if there are cheaper options, can help you deal with any impacts to your income caused by a recession. In some cases there will be spending that you can drop altogether ‒ if you aren’t making use of that streaming service for example, then don’t be scared to cancel the subscription.
It is also worth looking into ways that you can boost your own income. The most straightforward way to do that is to ask for a payrise, but a recession won’t help your chances of getting one.
Instead you may be better off looking at side hustles. You can make money by switching your bank account, making use of cashback websites when shopping online, renting out your driveway, just to name a few.
While none of these methods are going to make you rich, they can top up your income so that you can deal with rising costs elsewhere more comfortably.
John Fitzsimons has been writing about finance since 2007, and is a former editor of Mortgage Solutions and loveMONEY. Since going freelance in 2016 he has written for publications including The Sunday Times, The Mirror, The Sun, The Daily Mail and Forbes, and is committed to helping readers make more informed decisions about their money.
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