Recessions are often talked about in the media and can seem like a scary prospect. Read more about what a recession is and how you can look after your finances in one.
What is a recession?
A recession is when there is a significant decline in a country’s gross domestic product (GDP). Basically, a recession means the economy shrinks over a period of time.
When a country’s economy grows, the value of the goods and services it produces increases. This often results in the citizens of that country becoming wealthier.
A recession is the opposite of this. A recession is when the value of a country’s goods and services drops, resulting in an economic decline that lasts 6 months or more.
How long does a recession last?
It's difficult to determine exactly how long a recession will last as no two recessions are the same.
Before now, the most recent recession in the UK was in 2008. It was caused by the global financial crisis and lasted over a year. This recession doubled the national debt, unemployment levels rose and there were dramatic cuts to many areas of government spending.
What are the effects of a recession?
The effects of a recession are determined by how long it lasts and how badly the GDP is impacted. Things to expect in a recession include:
- a rise in unemployment rates
- a rise in poverty
- a decrease in income
- a decrease in property prices
- loss of businesses
- higher government spending.
Whilst a recession can hit some harder than others, it’s possible for all income levels to feel the impact. Some people may be forced to take a cut to their income or be made unemployed. People without work might struggle to find employment.
How can I stay safe in a recession?
There are various ways you can protect yourself during a recession. Some things you should do include:
- pay off debts – by paying off any outstanding debts you’ll be putting yourself in a more secure financial position
- save money – this may not be the easiest thing to do during a recession, but by cutting down on some luxuries, you might be able to save some extra money each month
- build an emergency fund – an emergency fund is there for you to use when unexpected costs arise such as vets’ bills, home repairs or car repairs. An emergency fund will help you to deal with any stressful financial situations that you weren't expecting.
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