We hear a lot in the news about the UK entering yet another period of recession. But what is a recession, precisely? We took a look.
What Is A Recession? A Definition
A recession is a period of economic decline, typically defined as a decline in a country’s gross domestic product (GDP) for two consecutive quarters. Recessions are typically accompanied by a drop in employment, a decline in consumer spending and business investment, and an increase in bankruptcy rates. While recessions are a normal part of the business cycle, they can have significant negative effects on individuals and the economy as a whole.
How Do They Occur?
Recessions typically occur when there is a drop in overall demand for goods and services within an economy. This can happen for a variety of reasons, such as a decrease in consumer and business confidence, an increase in interest rates, or a disruption in the supply of credit. As demand for goods and services decreases, businesses may experience a decrease in revenue, leading them to cut back on production and reduce their workforce. This, in turn, can lead to even lower demand for goods and services, creating a downward spiral in the economy.
What Is A Recession? The UK Situation
The Office for Budget Responsibility, which provides independent advice to the government, says the UK economy will shrink by 1.4% in 2023.
It says the recession will cause an overall drop of 2% in GDP.
The OBR predicts the economy will grow only weakly in 2024 (by 1.3%) and 2025 (by 2.6%).
As a result, it says the UK’s unemployment rate will rise from its current level of 3.6% to 4.9% in 2024.
The Bank of England previously warned that the UK is facing a two-year long recession – the longest-lasting recession on record.
Why Recessions Matter
Economic growth is often regarded as desirable. There are typically more jobs as a result. Companies are more profitable, allowing them to increase shareholder and employee dividends. In addition to increasing wages and profits, an expanding economy also increases tax revenue for the government. It can either increase spending on benefits, public services, and the salaries of government employees, or it can lower taxes.
All of these things reverse as the economy contracts.
Global Situation
According to the International Monetary Fund, other economies are also having difficulties (IMF). However, in terms of economic growth, the UK ranks last within the G7 group of advanced industrial countries.
According to the IMF, global economic activity is slowing down more swiftly than anticipated, and inflation rates are at their highest levels in many years.
The conflict that Russia is waging in Ukraine is partially to blame for this rise in oil and food prices. The Covid epidemic is still having repercussions today.
How It Could Affect You
The number of unemployed persons could increase and some jobs could be lost. It can be more difficult for graduates and school dropouts to land their first job.
Others could have a tougher time getting promoted or receiving pay raises that are substantial enough to keep up with price increases.
However, not everyone in society feels the effects of a recession equally, and inequality may rise as a result. Benefit recipients and people with fixed incomes are more prone to experience hardship.
