It is a significant decline in economic activity, lasting months or even years.
Generally during a recession, companies make fewer sales, people lose work, the economy struggles and the country’s overall economic output falls.
Economists usually define a recession as two consecutive quarters where GDP has fallen.
Why do recessions happen?
There are a number of common causes for recession, including:
- A sudden economic shock – such as the COVID pandemic or the war in Ukraine
- Excessive debt
- Asset bubbles – when investors become too optimistic and inflate the stock market or real estate bubbles, before the bubble bursts and panic selling ensues
- Too much inflation
- Too much deflation
- Technological changes
When was the last recession in the UK?
The most recent recession was during the pandemic when the UK saw negative growth in Q1 and Q2 of 2020.
Many people will also remember the Great Recession of 2008 and 2009 – the UK’s worst in modern history.
This was largely due to the mortgage crisis in the US impacting the British banking sector, and the subsequent “credit crunch”.
The UK also saw a recession between 1990 and 1991, caused by rapid economic expansion under Margaret Thatcher and Britain’s plans to maintain membership of the Exchange Rate Mechanism.
How will a recession affect you?
Unemployment levels will rise, so more people will be at risk of losing their jobs.
People who keep their jobs may see cuts to pay and benefits, or struggle to negotiate future pay rises.
Meanwhile, investments can lose money and savings can be reduced, upsetting some people’s plans for retirement or for large expenses such as buying homes or getting married.
Businesses make fewer sales during a recession, and mortgage lenders can also tighten standards for mortgages, car loans and other types of financing – meaning you may need a better credit score or larger down payment.
Source: Sky News