There are fears the UK could be heading for a recession after the second month in a row where official figures showed the economy is shrinking. In the UK, a recession is officially defined as 'negative economic growth for two consecutive quarters'.
In short, a recession means a general decline in economic activity - production and sales. For most people, it means a higher risk of unemployment, lower wages and an inability to secure credit or pay bills. In turn that means increased risks of homelessness, bankruptcy and deprivation.
Recessions can be caused by a number of factors - including inflation (the rate at which everything gets more expensive) running too high. A sudden economic shock - such as war or pandemic - can also start a recession.
Unemployment is particularly high during a recession. Research in Britain shows that low-skilled, low-educated workers and the young are most vulnerable to unemployment in a downturn.
After recessions in Britain in the 1980s and 1990s, it took five years for unemployment to fall back to its original levels.
The living standards of people dependent on wages and salaries are not more affected by recessions than those who rely on fixed incomes or welfare benefits. The loss of a job is known to have a negative impact on the stability of families, and individuals' health and well-being.
Fixed income benefits receive small cuts which make it tougher to survive.
According to forbes.com : "You may lose your job during a recession, as unemployment levels rise. Not only are you more likely to lose your current job, it becomes much harder to find a job replacement since more people are out of work. People who keep their jobs may see cuts to pay and benefits, and struggle to negotiate future pay raises."
Investments, savings and pensions all lose value. Businesses struggle to make sales and some collapse. Lenders tighten their criteria for handing out everything from loans and credit cards to mortgages and overdrafts.
A recession tends to last less than a year but its impacts can be felt for a decade afterwards.
The UK economy contracted for the second month in a row in April in the first back-to-back fall since Covid struck in 2020 as the cost-of-living crisis brought Britain’s pandemic recovery to an abrupt end. The Office for National Statistics (ONS) said gross domestic product (GDP), a measure of the size of the economy, fell by 0.3% in April, with all three main sectors suffering a fall in output for the first time since January 2021.
April’s month-on-month drop in GDP was also the biggest contraction since January 2021 and follows a fall of 0.1% in March. Experts had been expecting growth of 0.1% in April.
The ONS said it marked the first time GDP has fallen for two months in a row since March and April 2020, when the pandemic first hit and sent the economy tumbling. The figures showed output contracted by 0.3% in the main services sector, largely due to the ending of the Government’s Covid-19 Test and Trace programme and lower vaccination activity.
With the Test and Trace and vaccines impact stripped out, GDP would have risen by 0.1% in April, the ONS said, while it added that, in the three months to April, GDP grew by 0.2%. But there were also declines in the manufacturing and construction sectors, down 1% and 0.4% respectively in April, with manufacturers in particular noting the impact of soaring prices and supply chain woes.
The ONS said it is seeing anecdotal evidence widely across the economy of firms being hit by record fuel and energy prices, in particular the manufacturing sector. Chancellor Rishi Sunak said: “Countries around the world are seeing slowing growth, and the UK is not immune from these challenges.
“I want to reassure people, we’re fully focused on growing the economy to address the cost of living in the longer term, while supporting families and businesses with the immediate pressures they’re facing.”
He recently announced a further £21 billion support package for households to help tackle the mounting cost-of-living crisis, including a £400 discount on gas and electricity bills for every home, with measures part-funded by a windfall tax on energy firm profits. But there are concerns that more measures will be needed, with inflation already running at 9% in the UK and expected to soar past 10% in the autumn as prices rise steadily higher.
Petrol costs have hit new records, with the average cost of filling a typical family car with petrol rising past £100 for the first time last week. The Bank of England is expected to raise interest rates for the fifth time in a row on Thursday, from 1% to 1.25%, to try to rein in rampant inflation.
Samuel Tombs, of Pantheon Macroeconomics, is forecasting the economy to contract overall between April and June as the cost-of-living crisis hits hard, but still believes the UK will dodge a full-blown recession. He said: “A recession – two quarters of negative growth – remains unlikely.
“Households’ real disposable incomes should rise in both the third and fourth quarters now that the Chancellor has announced an extra £15 billion in grants during these quarters, equal to nearly 2% of their likely income.”
