What is a double-dip recession?

The UK has just managed to avoid a double-dip recession. But what does this mean for the future of our personal finances? Let’s take a look.

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By some miracle, it seems that the UK has just escaped going into a double-dip recession. There were fears that the November lockdown would push the country towards a double-dip situation. But it managed to avoid this by recording 1% growth in Q4 2020.

If your only experience of a ‘double-dip’ is of the sherbert sweet variety, then let me enlighten you. In this article, I’ll break down what a double-dip recession is and why it’s so important that it’s been avoided.

What is a double-dip recession?

A double-dip recession is when a recession is followed by a short-lived recovery and then another recession. If you imagine a line on a graph, it would look a bit like a rollercoaster. Rather than a v-shaped recovery, you would be looking at a w-shaped recovery.

A recession is two-quarters of negative GDP growth. The coronavirus pandemic pushed the UK into a recession in 2020. However, when restrictions were eased in the summer and most of us enjoyed the benefits of the Eat Out to Help Out scheme, the economy began to grow again.

The fear had been that this recovery would be derailed by a return to negative growth. But the reports of a 1% GDP growth in Q4 2020 means that even if this latest lockdown results in a decline in Q1 2021, the country will avoid a double-dip recession. This is because we will have avoided two consecutive quarters of negative growth.

What does this mean for Brits?

How does this impact Brits?

While the news that a double-dip recession has been avoided is positive, it doesn’t mean that the UK is out of the woods just yet. The end-of-year figures showed that GDP fell by 9.9% overall in 2020 – the biggest fall since modern records began.

And while there was a small amount of growth in Q4 2020, lockdown 3.0 will ensure that there will be a big slump in economic output in the first three months of 2021.

However, it is sometimes hard to predict how it could actually affect the public. In general, economic growth is good for the majority of people. There are more jobs, companies are more profitable and incomes rise.

If there is a recession, the reverse of this happens. So, in 2020 we saw increased job losses, pay freezes and a decline in household incomes.

What does this mean for 2021?

While the economy is likely to struggle to record any significant growth while we are still in the pattern of nationwide lockdowns, there are some positive changes.

Firstly, companies have adapted from the first lockdown and have already shifted their working patterns and altered their business models. So despite the tough restrictions, many have found a way to operate anyway, which will hopefully support economic activity.

Secondly, the rollout of the vaccine will hopefully lead to social restrictions being eased. This means that if we can get to Q2 2021 and open back up again, the spectre of a double-dip recession will fade further.

What does this mean for personal finances?

While we are not in a double-dip recession, the landscape is still challenging. Currently, interest rates are being kept low in order to stimulate the economy.

In terms of credit cards, what we have found is that the number of competitive 0% deals around has significantly reduced as lenders are being more cautious.

Meanwhile, low interest rates offer the possibility of competitive mortgage deals and personal loan products. However, banks and building societies have tightened their lending criteria, so the likelihood is that you will need a good or excellent credit score in order to be eligible.

On the flip side, low interest rates mean that the value of any cash savings you have is probably being eroded by inflation. Therefore, some people are looking to stocks and shares ISAs or share dealing accounts in order to grow their money. While there is risk involved in any investing, over the long term it could offer potential returns on money that is currently sat in low interest paying accounts.

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.

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