A recession has hit the UK for the first time in 11 years due to the coronavirus pandemic – but what is a recession? And what does a recession mean for the UK?
At Continuum we are looking at the answers – and at whether you need to look at your own financial arrangements.
The effects of the lockdown
We have all seen the headlines that suggest the UK has suddenly plunged into recession. But things might not be quite as bad as the headline writers might have you believe.
UK GDP fell by 20.4% between April and June, to a level that was last seen in 2003, according to the Office for National Statistics (ONS). Coronavirus forced entire business sectors to shut down. Businesses closed. Workers stayed at home. Shops could only sell necessities.
However, there are reasons to believe that the UK economy is already in recovery.
The bad news is that the UK has suffered a historic recession. The good news is that the recession ended as quickly as it began, as the country gets back to work.
GDP fell in March and April – but it returned to weak growth in May as businesses began to reopen, and strong growth in June as the world started to get back to work. GDP jumped by 8.7% in June, meaning that almost a third of the downturn has been recovered. The recession may be going away fast.
What about the effect on you?
Most people do not feel much impact from GDP. What matters most is their job, their income, the cost of living and the price of their home.
This is where recession could still bite. So far, the furlough scheme has allowed employers to keep their staff.The danger comes as the scheme is wound down. The Bank of England now expects unemployment to peak at around 7.5%, which is an improvement on their previous estimates, although a sharp increase from the 4% back in January.
House prices are linked to confidence in the economy. If unemployment is rising and economic indicators are falling, prices will drop with them. If people are unable to pay their mortgage, or need to quickly free up cash by selling up assets, there will be forced sellers, who accept much lower prices. A cycle starts that can lead to a price crash.
But interest rates are now lower than in 2008, so mortgages are generally more affordable. Prices may even be on the up, helped by the stamp duty holiday.
So, what should you do?
The recession may not be as deep as it appears or as prolonged as it has been feared, but the short-term effects could still have an impact. There may be tax increases to pay for government support measures, and with structural changes to many industries, it may be time to look at how your investments – and your pension pot – are structured.
We can help you take a fresh look at your financial arrangements now, but our service does not stop there.
Continuum lifestyle financial planning means building a long-term relationship, with regular reviews. We work to ensure that whenever you need help to look at your circumstances, someone you already know and trust will be there to provide it.
At Continuum we can help you rebalance your investments and pension pot to fit the new conditions, but we need not stop there. The pandemic has reminded us all of the need for life insurance, and for having the cover to ensure our financial security. Or you might even be thinking about a mortgage allowing you to take advantage of the Stamp Duty holiday.
Contact us today.
The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to suitable investment strategy, you should seek independent financial advice before embarking on any course of action.
The value of investments can fall as well as rise and you may get back less than you invested.
Your home may be repossessed if you do not keep up repayments on your mortgage
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