Understanding the Impact of a Recession
A recession is defined as “when there is negative economic growth for two quarters”. This can mean a recession can last from as little as 6 months to a year or longer.
During a recession, the economy experiences a significant decline, leading to reduced consumer spending, possible job losses, and financial instability. Understanding the impact of a recession is essential for taking proactive steps to safeguard your money.
During a recession, lending money is riskier for the banks meaning they are more likely to decline applications for loans and mortgages. Recessions can also see periods of inflation where the cost to buy items becomes more expensive, this means we can’t buy as much with our money and need to save more for larger purchases.
Although recessions are a natural part of the economic cycle, they aren’t very common and sometimes economic downturns, or a ‘slump’ is assumed to be an imminent recession. The Bank of England had previously forecasted a second recession in the UK this year but has since gone back on this and actually projected growth for the near future due to the economy recovering.
However, there is still currently a cost-of-living crisis in the UK with the rising prices of good and services making life difficult for more and people. This kind of economic uncertainty can cause just as much financial concerns as a recession which means that it’s important to make smart financial decisions and plan for the future.