What are the best shares to buy if a recession hits the UK?

Zaven Boyrazian explores which type of shares could be the best to buy now and what investment strategies to employ if a recession hits the UK in 2024.

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Investors are constantly searching for the best shares to buy. And with the British economy making headway in recovering from the current inflationary environment, there seems to be plenty of opportunity across the stock market.

Institutional forecasts are becoming more optimistic about avoiding a recession in the UK. However, there’s still some pessimism floating around that a delayed recession will emerge in 2024.

While these fears may be unfounded, it begs the question, what can investors do in case the worst does come to pass? Let’s explore.

What could trigger a UK recession in 2024?

Earlier this month, the Office for National Statistics revealed that CPI inflation in July grew by 6.8%. That’s a solid improvement versus the 7.9% just one month prior. While encouraging, inflation remains too high. And subsequently, I wouldn’t be surprised to see the Bank of England (BoE) continue to hike rates a couple more times in the coming months and quarters.

However, this creates a problem. Higher rates mean debt will continue to get even more expensive, placing much more pressure on the lower and middle classes as well as small- and medium-sized businesses. The latter has already seen a rising number of bankruptcies.

Moreover, a report by The Money Charity revealed in Q1 that more than £734m of credit card debt defaulted. And in the 12 months leading to May this year, total credit card borrowing jumped by nearly 8%. Consequently, the average total household debt now stands at £65,529. This means another 0.25% interest rate hike by the BoE translates into an extra £164 in annual household costs.

Needless to say, if the number of active consumers continues to fall, a recession may be inevitable.

Preparing for the worst

As gloomy as this perspective is on the British economy, a recession is by no means guaranteed. The BoE is well aware of the risk and is actively working to avoid it. Nevertheless, it doesn’t hurt investors to prepare just in case things turn to custard.

 So what can be done?

Diversification is a simple and effective method to manage investment risk in general. However, during economic downturns, ensuring a portfolio contains stocks from defensive industries can drastically reduce volatility. These are companies that households simply can’t live without, even during a recession. Think food, utilities, healthcare, etc.

While defensive stocks can be a source of stability, even they can be caught in the panic-selling crossfire when things go pear-shaped. That’s why employing a pound-cost-averaging strategy can also be a prudent move.

Instead of investing money in one giant lump sum, investors can spread it over several months. That way, if panic ensues, there will be money available to snatch up more shares at an even better price. And since many of these defensive stocks like to pay dividends, such bargains can also translate into a higher yield.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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