It’s official, the UK is on the way to a recession.
The data released this morning confirmed what experts have been warning for several months now.
While it’s not quite settled yet, it’s hard to find a single voice that thinks anything other than a long period of sluggishness is in store for the economy.
A recession is defined by economists looking at numbers on a spreadsheet, but the effects are real and are felt across the country.
There is still a lot of uncertainty about the UK’s outlook, but we already know enough about what is likely to happen next.
Here’s everything you need to know about the impending downturn.
What is a recession?
A recession is officially defined as two successive quarters in which the UK’s gross domestic product (GDP), a large measure of the size of the country’s economy, reverses.
Two quarters equals six months, although the economy does not have to contract in all of them. Instead, economists look at the general trend over these two periods.
All recessions are different, but it basically means that industries don’t grow, the job market stagnates or contracts, and there’s less money going back to the treasury to pay for public services.
How close are we to being in a recession?
The Office for National Statistics (ONS), the body responsible for tracking the data, confirmed that the economy contracted between July and September.
It hasn’t collapsed and some fear it could have been worse – but the numbers don’t lie and we are officially halfway through a recession.
If the same pattern repeats over the next three months to the end of 2022, the ONS will confirm at some point in February 2023 that we are officially in a recession.
What will a recession mean for jobs?
The job market has been disrupted by the pandemic and has not fully returned to normal, with many people over 50 choosing not to return to work.
Long-term illnesses and early retirements have seen the number of people classified as economically ‘inactive’ rise to more than a fifth of the working-age population and some sectors have struggled with labor shortages work aggravated by post-Brexit immigration changes.
This has created a situation where the labor market is “tight” – that is, there are vacancies but suitable workers are scarce, which in some cases drives up wages in these sectors (as happened with the shortage of truck drivers after the confinement).
While that’s not exactly a recipe for growth, it does mean the unemployment rate is just 3.5%, the lowest level since 1974.
However, some signs could be changing and a recent labor market survey revealed signs that employers are starting to be wary of hiring new people.
Audit firm KPMG and the Recruitment and Employment Confederation said hiring slowed in October for the first time in 20 months, suggesting the post-Covid jobs boom – which was already less pronounced than in most European countries – is coming to an end. .
Its findings that ‘the impending recession is clearly having an impact on the UK labor market’ were backed up by a separate survey of the state of employment in Scotland by RBS which found a similar downturn.
Yesterday’s collapse of Made.com and the loss of hundreds of jobs is a reminder that existing roles can quickly disappear in tough economic times.
The Bank of England has warned that unemployment could hit around 6.5% if the recession is as long and deep as it fears.
If not, how will a recession affect people?
Recessions hit different people in different ways, so it’s hard to give a general answer to this.
What we can say with certainty is that given the government’s strategy to deal with it, which is to rein in spending, people who depend on public services will notice a difference.
The same will be true for public sector workers, who are unlikely to see a significant increase in wages for some time, and it remains to be seen what will happen with benefits and pensions in the November 17 budget and beyond.
Young people and school leavers are usually disproportionately affected by recessions, as it is even more difficult for them to find a first job.
Retail spending is already down as families look to save money, according to the latest ONS data, so a recession is likely to hit small businesses like shops, pubs and the restaurants.
This will impact the people who work for them, who will struggle to get a raise or promotion and could even be fired.
The weak British pound should be good news for exporters, but a slowdown in global trade caused by rising inflation is bad news for businesses and it will also impact people working in these industries.
How long will the recession last?
The Bank of England warned earlier this month that Britain’s economy could contract for two years if its direst predictions materialize, longer than after the 2008 global financial crisis.
But it’s important to note that even during the time economists were working on these forecasts, a lot has changed (including the collapse of a government and the complete reversal of Treasury economic policy).
Whoever is in charge in the UK, big global factors such as energy prices, the war in Ukraine and China’s continued lockdown policy will all play a significant role and it’s hard to say for sure how. these things will happen.
Rishi Sunak and Jeremy Hunt are betting hard on restoring the UK’s economic credibility by targeting public debt and the deficit by raising taxes and cutting spending on November 17.
By assuring businesses that the Treasury will be able to pay its bills and maintain a stable economic environment in the future, they hope that private investment will flow into the UK, boost growth and lift the country out of recession.
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