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A Guide To The Coronavirus Recession

The UK is now officially in a recession, in our Guide To The Coronavirus Recession we cover what a recession is, how it impacts on the wider economy and how to recession proof your finances.

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What is a recession?

A recession is where a country or region experiences a decline in economic activity. In the UK there needs to be 2 consecutive quarters, or six months in total, of negative economic growth for it to be defined as a recession. It is often triggered by large-scale events, such as a financial crisis or a global pandemic as we are seeing today.  So, why is it headline news this week? The UK’s stats body, ONS, announced on 12th August 2020 that for the second quarter, April to June, UK economic activity fell by 20.4% compared to the first three months of the year. This was the second consecutive quarter of negative economic growth. Lockdown measures and low consumer confidence has had an impact on spending, travel and investment in a number of countries not just the UK. It is only now that the economy is beginning to reopen and as such it felt inevitable that the UK would slip into a recession.  

What trends should we expect to see?

When a recession occurs business and households look to tighten their belts. People tend to focus on how they can  weather unexpected shocks. Spending might reduce and saving rates might rise. Businesses will look to reshape how they operate in a more challenging environment. There have already been job losses and we may also see house prices fall. However as we have seen with numerous initiatives, the government is trying to keep demand up for things like house purchases by cutting stamp duty and introducing grants for environmentally friendly home improvements. Coronavirus is a moving beast though, The Office for National Statistics (ONS) said the economy bounced back in June as government restrictions on movement started to ease. On a month-on-month basis, the economy grew by 8.7% in June, after growth of 1.8% in May.

When was the last recession?

The last major recession the UK experienced was back in 2008 and 2009 following the global financial crisis. Banks struggled to cope with growing mortgage arrears and the lack of available loans to cover their costs. Prior to that the UK has experienced a recession in every decade since the 1950s as a result of various global events.  It is important to note that this recession isn’t like any other experienced previously. Government are encouraging people to support local business. They have also been propping up the employment market with the job retention scheme, so the true effects of this recession may not be seen until later on down the line.

How do I recession proof my finances?

Firstly it is important to get your head around your outgoings and incomings. Feel free to use our Push Comes To Shove Calculator  so you can understand what you have each month. Take a look if there are any non-essential services you don’t need or are no longer using, or even pick up the phone and speak with your providers for a better deal. Make sure you have a rainy-day fund just incase you lose some or part of your household income. If you are in the fortunate position where you can save for the long-term you should also look at investing. The sooner you invest and the longer you do it for, the more likely you are to have the potential for healthy returns regardless of short-term blips.

Investing during a recession

When it comes to investment planning knowing when to buy and sell is not the secret to success. No one knows for sure when the markets will rise or fall and trying to time the markets is not only stressful but is rarely successful.  The key is to invest for the long-term to improve the potential for healthy returns and achieve your financial goals regardless of market fluctuations. Historically, investors who ride out the storm have seen their investments recover in periods of declining markets. When investing during volatile times there is a temptation to feel like you want your money in the relative safety of cash. However, recent years have seen higher rates of inflation and lower rates of interest on cash. The pressure inflation places on cash can be debilitating, at just 2.5% inflation an investor would lose nearly half of their purchasing power over 25 years. This means that £10,000 today would have the purchasing power of £5,394 in 25 years time. 
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Financial Advice In A Recession

It might not feel it but actually now is a good time to save and organise your finances. If you would like to sit down with an adviser to review what opportunities are out there for investment or indeed you want to catch up about your finances we will be here when you are ready. Your financial adviser can conduct meetings on video or phone to help you through what really does feel like a storm at the moment. Together we can make sure your money is working as hard as it can.

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