Planning for a very different UK economic recession

With so many unexpected issues arising and causing this event, strong financial planning, savings and even your investments may help you withstand the negative impact.

What is a recession?

By definition, a recession is “a period when the economy of a country is not successful and conditions for business are bad”.

In this instance, it has been a predictable outcome for central banks around the world. This is due to a number of factors such as:

• High energy prices
• Continually elevated inflation
• Rising interest rates
• Global economic weakness

According to The EY ITEM Club Autumn Forecast the UK economy will be in recession until the middle of 2023.

Are the indicators different this time?

Recessions aren’t a new thing in the UK, but a series of events have caused the economic downturn rather than just one thing.

The most significant events have been the zero covid policy in China which re-introduced lockdowns and has led to global supply chain disruptions, which can cause inflation to rise when demand exceeds supply. The inflation problem has been exacerbated by the worst European war since the second world war, with Russia invading Ukraine and the resulting energy crisis which has meant the economy has faced many unpredictable hits this year.

The Bank of England’s Monetary Policy Committee has also raised interest rates nine times in a row which hasn’t been done since 1989.

With all of these factors, it may be that the only way to control inflation is to have a recession.

What steps can you take to minimise the impact of any fall out?

Savings

The next six months may not be the time to book a luxury holiday or buy a new car. Instead, preparing an emergency fund that’s available throughout tough times can turn your financial situation around and save you from unexpected costs.

Hold fire on pulling the plug on existing investments

A great thing to remember is that your long-term investments do not need to be pulled out in order to minimise risks during a recession.

But, why?

Well, that’s simple. Recessions are temporary hitches in the market and will subside once things level out.

Don’t rush to scrap profitable investments just because there is a temporary downturn.

Reduce any debt

Now that it’s being forecasted that a recession is coming, it’s the perfect time to work on paying off any outstanding debt.

If you have loans or credit cards that require repaying, a little bit of financial planning could get you in a good place to combat the negative effects from a downturn. The first thing to do is pay off your credit card loans.

This may not be possible for large loans such as mortgages, but for those loans that you are able to pay off quickly could allow you to have a better grasp on what your financial situation can handle if the outlook deteriorates further.

Have an alternative source of income

If the recession is hitting your business or place of work, you will need to pick up an additional source of income.

So, why not plan for it in advance?

Whether you sign up as a self-employed freelancer for a bit of extra money on the side or have a couple of viable business ideas ready to go, you will need other options to provide another source of earnings.

In the end, strong financial planning is essential to ensuring that you and your loved ones are prepared for the recession ahead. For more information on financial planning, investments and savings, call us on 01242 399344, or info@piercefield.co.uk