Many of us have already been feeling the pinch as the cost of living quickly morphs into a crisis.
But now, as inflation continues to soar and the increasing cost of living hits households across the country, some experts are predicting another recession.
What is a recession?
The technical definition of a recession is when an economy contracts over two consecutive quarters – six months.
It is generally accepted that when an economy does this, it has entered a recession, and this is measured primarily by its gross domestic product (GDP).
The Bank of England has not technically predicted a recession. However, it expects a huge downturn towards the end of the year, with a contraction of almost 1 per cent between October and December.
For the following year, GDP is forecast to remain below 2022 levels throughout the whole of 2023, with growth expected to average at zero across the twelve months.
What might cause another UK recession?
Multiple factors in play have contributed to the current financial crisis facing the UK.
In isolation, they are big challenges but not a disaster. However, a combination of the successive lockdowns in the UK slowing down the economy, along with Russia’s invasion of Ukraine damaging the international market price of gas and oil, mean that the current volatile climate could be set to take another downward turn.
Already, we’ve seen the sharp rise in household bills this year.
Since April, there was a 54 per cent jump in gas and electricity, and the Bank of England believes that costs will rise further in October by as much as 40 per cent.
This will take the average domestic bill to more than £2,800 a year.
Meanwhile, interest rates are set to hit levels not seen in more than 30 years.
With rampant inflation and the snowballing cost of living set to leave households and businesses feeling poorer, spending is likely to fall.
As a result, the economy will contract. If forecasters are correct, this is how we might expect a recession to manifest in the near future.
Will there be another UK recession?
Not all experts are predicting a recession. In the Office for Budget Responsibility (OBR) forecasts, growth for the UK was predicted at 3.8 per cent for this year.
Meanwhile, in the most recent world economic outlook from the International Monetary Fund, it was pitched at 3.7 per cent – the joint-strongest in the G7 group of industrialised nations.
But even optimistic forecasts aren’t predicting much growth, with Deutsche Bank lining up the odds of an economic downturn at close to one in three.
Inflation is likely to remain higher for a longer period, and so the pressure on households to economise will only increase over the summer.
For many, it might start to feel like a recession, albeit unofficially.
What would a recession mean for me?
While some experts are expecting a recession, no one can predict the severity or the length of it, making it difficult to outline the tangible impact on UK workers.
Businesses are likely to try and save money during a recession, meaning jobs could be lost, and with spiralling inflation and energy price hikes, wages may be unable to cover the cost of everyday essentials.
For context, the UK’s 2008 recession saw unemployment levels peak at 10 per cent.
Nothing is certain yet, but with a potential recession looming, paying down any expensive debt might be a good option - if you can.
Building an emergency cash fund is also recommended, as this will help protect against the worst effects.
You may have already built up a savings pot on the back of the coronavirus pandemic, if you were in a position fortunate enough to do so.
These rainy-day savings will be crucial in cushioning any blow to your income posed by a potential recession.
Speak to an independent financial adviser to see how you can plan for whatever comes next.