Until recently, the UK seemed to be back on track. Economic output was on the rebound and, with Covid-19 restrictions lifted, people were out splashing their cash. However, reports of rising energy prices, tax hikes and supply chain issues have dented confidence. So is the UK headed for a recession next year?
What’s happening with the economy?
It looked like the UK was on track to make a full economic recovery. House prices were booming and things were opening back up again. Stats from the ONS showed that the economy grew by 0.4% in August. The summer of the staycation meant restaurants, hotels and campsites experienced a much-needed boost.
However, right now, the economy is still 0.8% smaller than it was before the pandemic.
In the past few weeks, it’s been hard to avoid news that inflation could exceed 4% by the end of the year. With that and supply chain issues putting a dent in our Christmas plans, it’s understandable that confidence is low.
The biggest game-changer could be the Bank of England increasing interest rates. The bank has indicated that it needs to move away from the ultra-low rate of 0.1% sooner rather than later in order to tackle inflation. But could this push the UK into a recession?
Are we looking at a recession in 2022?
A recession is when the economy records two consecutive quarters of negative growth. Right now, experts are forecasting growth of 0.9% in the first quarter and 0.7% in the second quarter of 2022. So if this is the case, the UK will avoid a recession.
However, the pressure of inflation and high energy prices means that some economists are predicting there could still be a slight chance. And when I say slight, I mean only a 10% chance.
Whatever happens, the start of 2022 is likely to be a pinch point. With Christmas coming up, issues are expected due to supply chain problems, which may dent consumer confidence and bleed into the start of the year.
Then there is the energy cap coming in April, plus rapidly rising prices and increased taxes. All of this means that we are more likely to tighten our belts than go on an extended post-pandemic spending spree.
Finally, higher interest rates could also finally take the wind out of the housing market’s sails. This could also have a dampening effect on the economy.
Can you recession-proof your finances?
You may not be able to avoid the impact of a recession entirely, but there are ways to strengthen your personal finances.
- Act early: If you are concerned about the economy taking a turn for the worse, then the earlier you make changes, the stronger your position will be. This includes looking at your budget and finding ways to save money where possible.
- Get in control of your debt: If you have any outstanding credit card debt or personal loans, then one of your first steps should be to pay off as much as you can. This type of debt is expensive, so reducing your exposure is a good thing for your finances.
- Build up emergency savings: If you can build an emergency savings fund, then you will be in a better position to handle an unexpected bill or event.
- Make a switch: Now is the time to look for a better deal, be it for your energy bill, broadband or car insurance. If you can switch to a cheaper deal, then you can reduce your monthly outgoings.