It’s official: the UK is on the road to recession.
The data released this morning confirmed what experts have been warning for several months.
While it’s not a done deal yet, it’s hard to find a single rumor that thinks anything other than a long period of obscurity is in store for the economy.
A recession is defined by economists who look at the numbers on a spreadsheet, but the effects are real and are being felt across the country.
There is still a lot of uncertainty about the outlook for the UK, but we already know enough about what is likely to come next.
Here’s everything you need to know about the impending recession.
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, goes against the trend.
Two quarters equals six months, although the economy is not expected to contract in each one – instead, economists are watching the general trend in these two periods.
All recessions are different, but fundamentally it means that industries are not expanding, the labor market is flat or shrinking, and there is less money going back to the Treasury to pay for public services.
How close are we to the recession?
The National Statistical Office (ONS), the body responsible for tracking data, confirmed that the economy is contracting between July and September.
It hasn’t collapsed and some fear it could be worse, but the numbers don’t lie and we’re officially halfway to a recession.
If the same pattern is repeated 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 recession.
What will a recession mean for jobs?
The job market has been rocked by the pandemic and has not fully returned to normal, with many people over the age of 50 choosing not to return to work.
Long-term illness and early retirement 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 exacerbated by post-Brexit immigration changes .
This has created a situation where the labor market is ‘rigid’, i.e. there are vacancies but there is a shortage of suitable workers, which in some cases raises wages in those sectors (as happened with the shortage of truckers after the block).
While this isn’t exactly a recipe for growth, it means the unemployment rate is only 3.5%, the lowest level since 1974.
However, there are signs that they may change, and a recent job market survey has picked up signs that employers are starting to be wary of hiring new people.
Auditing firm KPMG and the Recruitment and Employment Confederation said hiring slowed in October for the first time in 20 months, suggesting that the post-Covid job boom – which was already less pronounced than in most European countries – is coming to an end.
His conclusions that “the impending recession has a clear impact on the UK labor market” were supported by a separate survey on the status of employment in Scotland by RBS, which found a similar slowdown.
Yesterday’s Made.com crash and the loss of hundreds of jobs are a reminder that existing roles can quickly vanish in tough economic times.
The Bank of England warned that unemployment could rise to around 6.5% if the recession were as long and deep as it is feared it will be.
How else will a recession impact people?
Recessions have affected 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 address it is to contain spending, people who rely on public services will notice a difference.
The same will also happen to public sector workers, who are unlikely to see a significant pay rise for some time, and it remains to be seen what will happen with the benefits and pensions in the budget of November 17 and beyond.
Young people and school leavers are usually disproportionately affected by recessions as it becomes even more difficult for them to find a first job.
According to the latest ONS data, retail spending is already falling as households try to save money, so a recession is likely to hit small businesses like shops, pubs and restaurants.
This will impact the people who work for them, who will have a hard time getting a pay raise or promotion, and may 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 have a knock-on impact for people working in those sectors.
How long will the recession last?
The Bank of England warned earlier this month that the UK economy could contract for two years if their darkest predictions were fulfilled – longer than the 2008 global financial crash.
But it’s important to note that even in the time economists were working on those forecasts, a lot has changed (not least the collapse of a government and the total overthrow 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 blocking policy will all play a major role and it’s hard to say for sure how these things will turn out.
Rishi Sunak and Jeremy Hunt are betting on restoring economic credibility in the UK by targeting public debt and deficits by raising taxes and cutting spending on 17 November.
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, spur growth and lift the country out of recession.
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