Less than a week ago, the UK government formally announced that the economy was in recession for the first time in 11 years and to make matters worse, it’s the deepest recession on record for the country.
Well, in case you are wondering what a recession is, it is a period when an economy is in decline and productivity takes a nose-dive. Usually, it is characterised by high levels of unemployment and reduced incomes as employers do not see the need for a large workforce due to falling demands for the goods or services that they provide.
Individuals affected by a recession often fall into financial difficulties as they struggle to keep up with their debt repayment, and many often lose their homes when they can no longer afford their mortgage. The impacts of such unfortunate occurrences on families can be devastating as many people have been found to suffer from depression and some even take their own lives as a result.
What triggers recessions?
A look through historical records of UK recessions reveals a number of factors that could lead a country’s economy down the unpleasant path including the financial crisis, as was witnessed in the 1930s as a result of the Wall Street crash which triggered the Great Depression in the USA. In the 2007 – 2008 period, the banking crisis occasioned by the run on Northern Rock over here and the collapse of Lehman Brothers in 2008, plunged the UK into its deepest recession since World War II. Other triggers in the past have been the property crash in 1990 – 1992 after a lot of people took on mortgage debts they could not afford because interest rates were low and there had been tax cuts in the preceding years giving a false sense of financial security, which couldn’t hold up when the country saw a dramatic rise in interest rates.
During the period of 1973 – 1976, the Yom Kippur War in the middle east pushed oil prices up four times, while the miner’s strike in 1974 resulting in a 3-day working week coupled with astronomical inflation rate rise of up to 26% in 1975 inevitably led to what was known as the stagflation.
In 2020, the UK recession is being blamed on the outbreak of the coronavirus pandemic which has forced governments across the world to implement draconian measures to stem the tide of the pandemic, including forced lockdowns. This has led to a sharp fall in productivity as not all services in the economy can be provided remotely.
Subsequently, there has been a huge number of job cuts and many more are feared to come when the government’s furlough scheme intervention to protect jobs is brought to an end in October.
How to avoid the drop in a recession
It has been proven over the years that unemployment, which is inevitable in a recession period, often leads to mental health problems such as depression, domestic violence, alcohol abuse and even suicide. While it is advisable to speak up and seek help from qualified professionals, government agencies or charities if a person is feeling depressed, it is even safer to avoid getting into that situation by taking steps to make yourself recession-proof. I have provided a few tips that may be of help.
1. Dust off your CV
The longer a recession lasts, the more difficult it is to get jobs so; it is advisable to freshen up your CV and update your profile on job sites and networking platforms such as LinkedIn in order for employers to know you are open to new opportunities should the need arise.
2. Seek out new income streams
It helps to have multiple streams of income as a backup in case the dreaded phone call or email from the employer materializes. One of the up-sides to the pandemic is the disruption it has caused forcing people to become innovative in their own way. For example, a friend of mine casually posted a picture on her WhatsApp status of coconut candy balls she had made at home, and within 10 minutes, she got her first order for the candy from one of her contacts. Nice to get paid for a pastime.
3. Cut down on your expenses
During the lockdown, a lot of people have been able to reflect on life in general. One vital area of reflection should be your expenses. There is no point in splashing your cash in a recession even though there are some mouth-watering offers on display from retailers as they try to woo back shoppers into their stores or online. So, be wise and cut your spending down to the bare necessities for now.
4. Keep the savings pot warm
Ideally, the rule of thumb is to have savings that can cover your essential monthly outgoings for between 3 – 6 months, and if you can’t earn more at the moment, then you’ve got to save more by steering clear of avoidable expenditure. Don’t just accept renewals on your existing subscriptions or utilities as you may find cheaper alternatives and good discounts if you shopped around. Money not spent today can go into that savings pot of yours for the rainy day.
5. Mind the income-debt gap
In a recession period, you want to make sure that you are not taking on new debt especially ones you can’t afford to repay. While UK interest rates might be at very low levels, you can’t predict government policy that could lead to interest rate rises making your debt more expensive.
“Wisdom is the principal thing; Therefore, get wisdom. And in all your getting, get understanding.”
— Proverbs 4:7
•This post originally appeared on https://www.obimadunagu.co.uk/blog/uk-recession-is-here
•Pastor Obi resides in London United Kingdom where he functions as senior-pastor of the Common Impact Centre branch of Church of God Mission International and manages his business interests in e-Commerce, management consulting, healthcare and real estate. He is married to Ogiuwa Madunagu, and they are both blessed with two sons – Harold and Jed.
He can be reached via [email protected]