With a cost of living crisis, rising fuel prices, and inflation at its highest point, the UK may be in for more bad news.
Interest rates have been raised from 2.25% to 3% – the highest level since November 2008.
The Chancellor of the Exchequer Jeremy Hunt has even warned that interest rates may need to soar to 5% over the next few months to deal with rising inflation.
Towards the end of September, the Bank of England revealed the UK is probably already in a recession with GDP falling and interest rates at the highest in over a decade.
With inflation expected to remain at high levels, UK household incomes are facing what many are describing as a ‘historic squeeze’, which will almost certainly be reflected in consumer spending.
Following this worrying news, here’s exactly what a recession entails, and when the UK last experienced one.
What is a recession?
Put simply: a recession means there has been a notable decline in economic activity.
It is declared when the economy experiences negative gross domestic product (GDP). This is effectively how much the nation is buying and producing, so reduced consumer spending is taken into account.
It is also linked to increased unemployment figures, stock markets declining or crashing and stagnant wages.
While recessions can last weeks, months or years, the effects of one are often felt for far longer and, unfortunately, there is no limit to how long one can go on for.
Speaking out their latest release, Grant Fitzner (Chief Economist at the ONS) said: ‘The economy shrank in August, with both production and services falling back, and a small downward revision to July’s growth the economy contracted in the last three months as a whole.’
If a recession carries on for a longer period of time, it turns into a depression. This length of time is typically around three years or more, or when the GDP decline hits 10% or more.
When was the UK last in a recession?
The last UK recession was not long ago, with it falling during the height of the coronavirus pandemic in August 2020.
Following a lengthy lockdown with shops and hospitality venues being closed, as well as hundreds of companies going out of business, the UK economy suffered significantly.
In fact, the country’s GDP fell by a staggering 20.4%, with many across the nation losing their jobs or being furloughed for lengthy periods of time.
Prior to this, the UK faced a recession in 2009 after the economic crisis that began in 2008.
During that recession, GDP fell by 7.2% in Britain and the recession did not end until the final quarter of 2009.
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