What is a recession?

Monday 26th Feb, 2024

What is meant by a recession?   What does this mean for you and your money?

In mid-February 2024 it was announced that the British economy had entered a recession.  Many people are wondering what this means and whether it will affect the money in their wallet or purse.  We hope this article will help to explain.

The first thing we need to know about is Gross Domestic Product (GDP).  You’ll often hear GDP mentioned in news bulletins talking about a country’s economy.

GDP is the total value of goods made and services produced in a country during a given period.  Goods include the value of things like new washing machines, motor cars and items sold in a supermarket.  Services cover a wide variety ranging from a haircut to repairs by a plumber or the purchase of an insurance policy.

In the UK the Office for National Statistics (ONS) estimates the total GDP every month by collecting data and conducting surveys among various businesses.

The total GDP for one month can then be compared with the figures for previous months, and also with forecasts (expert’s predictions) for that month.  From this you can tell whether an economy is growing, stagnating or shrinking.   The trend over several months shows how healthy the economy is.   

When GDP is falling, there is said to be an economic downturn, or negative growth.  If the downturn lasts for two successive quarters (ie six months), the economy is officially declared in recession.

This is what has happened in the UK since July 2023.  GDP fell by 0.1% in the three months to September, then by 0.3% in the final quarter of the year, a bigger drop than expected.

With the economy in recession, there is less money to go round and people as well as businesses are feeling the pinch.  Signs of recession include factories producing less, employers cutting back on staff numbers, hours of work or wages and consumers with squeezed budgets spending less money in the shops, especially on ‘big ticket’ items like home furnishings, cars or special holidays.  Lower incomes and less spending also gives the Government less tax income, which piles more pressure on already depleted public services.

In times of recession banks may tighten up their lending rules, making it harder or more expensive to get mortgages and loans, because of the greater risk of them not being paid back.  Those whose fixed rate mortgages are coming to an end may face increased monthly costs.  

A recession being declared won’t necessarily change people’s finances overnight, but it can dent confidence.  With businesses less keen to invest and expand, workers may struggle to get a new job or future pay rise.

One cause of the current recession may be the sharp rise in interest rates imposed by the Bank of England since early 2022.  This was intended to tackle spiralling inflation by making borrowing more costly and depressing demand by making it harder for consumers and businesses to spend.

However, with the rate of inflation now down from 11% to 4% (although prices are still rising, just not as fast), the Bank may decide to cut interest rates sooner than planned, which should help consumer confidence to return and GDP to start growing again.   Economic growth is good for the country because people and firms have more money to spend, more jobs are available and the Government gets more tax, helping to fund more public services like the NHS.

During these tough times, HEY Credit Union has tried to support its members to make the most of their available money.   Unlike many lenders, who took advantage of the rising interest trend to make more money, we have kept the interest rates on all our loans constant.  As a not-for-profit member-owned organisation, we do not want to add to our members’ burdens.  This has made our Personal Loans even more competitive.   

For many people, taking out large loans for big spends is not possible at the moment.  But, unlike many lenders, we are happy to lend smaller amounts, at competitive rates, for those needing to spread the cost who just want a helping hand.

For those wanting to save up safely without risking their cash, we’ve been able to increase the Dividend on all our Savings Accounts each year since 2021.  We have done so, despite the economic downturn, by careful management of our members’ funds and benefiting from the higher returns available on the investments we hold on your behalf.

The experts are predicting that the recession will be mild and not last very long.  Lets’ hope they are right and we can look forward to more prosperous times with GDP growing steadily year by year.


This article is for general information only and does not constitute financial, legal, or any other form of advice.

Updated 19.02.24.


Share This Story

Next Post: Pet Insurance - What's it all about?
© Hull & East Yorkshire Credit Union | Registered under the Credit Union Act 1979 and the Co-operative and Community Benefit Societies Act 2014. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and Prudential Regulation Authority. Our FRN is 213620.