The UK is officially in a recession for the first time in 11 years. Not only are we now in a recession, we are in the “largest recession on record” according to the ONS. But is it possible to thrive in a recession?
This post aims to give you the tools to not just survive but thrive in a recession.
Already, unemployment has fallen by largest amount in over a decade and the Bank of England has suggested that the economy is unlikely to return to its pre-crisis level before the end of next year. Commentators largely appear to agree the recession will last deep into 2021.
In addition, the UK has the end of the Brexit transition period to contend with at the start of 2021, which will no doubt impact the economy in some way.
This post will cover:
- What a recession is
- What could happen
- Whether there are there any positives
- Whether you can protect yourself
- What to do to prepare
- How to thrive in a recession
- Whether now is the time to invest
What is a recession
A recession is a macroeconomic term that refers to a significant decline in general economic activity in a designated region. It is typically recognised as two consecutive quarters of economic decline, as reflected by GDP in conjunction with monthly indicators such as a rise in unemployment.
It doesn’t mean there has been or will be a stock market crash, although this usually is the case because companies perform worse when growth falls. Also, investors tend to panic and sell, which causes valuations to drop significantly.
There is no set length to a recession but, looking at previous examples, they tend to be 2-3 year periods. We won’t necessarily be technically in a recession for this long, but the after effects can be worse than the initial shock. This means the economy will still be in bad shape and purse strings will be tightened, even if the actual recession has ended.
What might happen
Output recovered 8.7% in June, which lead to talk of a ‘V shaped recovery.’ This would mean growth would recover almost as quickly as it fell, which would obviously be great.
Personally, I don’t believe this will happen – there is still a lot of temporary stimulus in the economy, arguably creating a false picture and the ripples of Covid-19 will continue to impact society for a long time.
There’s already been the largest rise in unemployment recorded in a decade. When the furlough scheme ends on October 31, this may rise even further.
As people lose their jobs, spending demand may fall. This creates a vicious cycle: if there is less demand for consumer goods and services, there will also be less jobs because companies’ profits will drop and the demand won’t be there to keep employees working.
As salaries are likely to stagnate, the cost of living may become more expensive due to inflation. This will mean the average household will have less disposable income, as more of their paycheques go towards essential expenses.
Public spending cuts vs tax hikes
There could be a squeeze on public spending. However, after over a decade of austerity, this seems less likely. The public and political sentiment does not appear to support this. A recent YouGov poll conducted on behalf of Times Radio found that 47 percent of UK adults now support ‘mainly tax rises’ for controlling the deficit, while just 30 percent supported this approach in December 2009.
Conversely, over half (52 percent) supported public spending cuts in 2009, while just 27 percent support them now.
Additionally there is little left to cut in terms of public spending!
This means is tax increases are likely, which will again mean the average household’s income will be stretched even further. But will we see the introduction of a wealth tax? Public sentiment certainly supports one.
Are there any positives?
Some industries and individuals will thrive. Matthew Syed, a journalist and commentator, has often said [sic] things have to fail for new things to prosper and thrive.
It is possible to thrive in a recession. However, whether or not you manage to thrive in a recession is not entirely in your own control. If you are lucky enough to have a steady job, a supportive family and little to no debt then your situation cannot be compared with that of a family already around or below the poverty line.
This doesn’t mean anyone should despair or give up. With a bit of luck and hard work, you may just find the opportunity you’ve been dreaming of.
I also believe this is an opportunity to reset the economy and create a more equal society which benefits everyone.
Can I protect myself?
Sadly, you can’t fully protect yourself. At this point, it would be difficult to say that many jobs are 100% safe. Of course, if you’re a front line or essential worker you have a lot more security than most.
Additionally, rent and other necessities could increase in price. Landlords’ other income may have been squeezed and they may have lost out to rent holidays in lockdown, so they may look to increase rent.
Consider whether you need to find somewhere cheaper to live. Personally, I’m in the privileged position of living with my parents at the moment. I was planning on moving out in the Autumn, but due to the circumstances will stay a bit longer. Obviously, this is not an option for everyone, but you may be able to find somewhere with cheaper rent that still works for you.
Cut out unnecessary expenses before it’s too late. Do you have a gym membership you never use or an expensive coffee habit? Of course, this won’t help genuine poverty, but it could make a difference to some.
Apps like Olio can be great for reducing your food bill (and food waste). You can request items listed on the app for free and can list spare items yourself for members of your community to collect.
How can I prepare?
Create an emergency fund if you don’t already have one. This is a pot of money, which you can draw on if you lose your income. Typical recommendations are to have at least 3 months of expenses saved, but some suggest having up to 6 months.
This can take time to build up, so don’t be disheartened if you can only save a little into it each month. The important thing is you are starting to prepare yourself for any eventuality and giving yourself more security.
Side hustle seems to be a buzz word for millennials and Gen Zs. While not an option for everyone, diversifying your income can be a good option and help protect you if you lose your job. This doesn’t have to be hugely time consuming. It could be as simple as selling old clothes on Depop or as complicated as running a small business – the choice is yours.
You should also make sure you know what support you may be entitled to if times get tough. I speak about this in more detail here.
This support is there to be used, so don’t be afraid to ask for help if you need it. Remember everyone is only a crisis away from needing help.
What steps should I take now?
If you’re concerned, the first thing you should do is properly assess your financial situation. Make sure you are aware of how much money you have, where it is and how easy it is to access. You should also see if you have any outstanding debts. If you do, it may be worth trying to clear as much as possible.
It may be wise to temporarily add to your emergency fund, rather than other saving pots. In these times, it is ok to adapt your goals if you need to. If it takes you a year longer to buy a house it really doesn’t matter. We’re living through a global pandemic and the worst recession on record, changing the timeline is the sensible thing to do.
If you believe you are secure financially and protected against the negative impact of a recession then consider spending money, responsibly of course. I’m sure a lot of money bloggers will be very unimpressed with this advice, but stimulating the economy is crucial to supporting society’s most vulnerable, many of whom are still suffering from the aftershocks of the 2008 Global Financial Crisis.
Of course, only spend within your means and make sure you are still putting money aside for savings each month. But, supporting local shops and restaurants, could genuinely protect jobs and be the difference between poverty and relative comfort for some.
Look for opportunities and stay curious. Having a plan is always helpful, but it’s ok to deviate from it at times. Don’t be closed off to unexpected opportunities- these sometimes lead to the greatest successes.
Keep your CV updated and ready to go in case an unmissable opportunity comes your way or you see an advert for your dream job. This is good practice always, not just during recessions!
And If I want to invest?
Just because there’s a recession, it doesn’t mean you should steer away from investing if you have the funds available. Investing can help you thrive in a recession, as, if done correctly, can offer a form of passive income. Remember you should look to hold investments for at least 5-10 years, so don’t invest any money you may need to draw on in the near future.
In general, now is the time to look for reliable companies and ones that are either not impacted by Covid-19 or set to benefit from it. FAANGS (Facebook, Apple, Amazon, Netflix and Google) can be a good place to start.
I’m a big fan of ESG so may be biased, but I do believe sustainable investment options will continue to grow in importance and perform well in years to come. Now may be the time to buy, while they’re still largely underappreciated.
Some commentators are arguing UK assets are undervalued, so there may be opportunities there. The UK economy has shrunk more than its US/Eurozone counterparts, but the UK economy is more service driven than most so this is not particularly surprising.
I would also urge against reading too much into comparisons at this stage. The recession is only just beginning and countries will all be affected in different ways and at different times.
It is also likely that the pound will strengthen against the dollar, as the uncertainty of the US election grows.
If you found this post interesting, please like it and share across social media or send it to your friends. I’d also love to hear your thoughts and experiences, so please do leave a comment! Are you worried about the recession? Do you think it’s possible to thrive in a recession?