How could a looming recession affect you? Strictly Business on the threat of a downturn for the UK economy and households
On this episode of Strictly Business, the Daily Mail’s Ruth Sunderland and Alex Brummer discuss what the threat of a looming recession could mean for the UK economy and households.
It gives me no pleasure to say this, given the resilience and adaptability British businesses showed through the long, hard months of the pandemic, writes Ruth Sunderland, but it looks very much like recession is looming.
Many commentators believe it is not a question of whether we have a slump, merely of how bad and how long.
Growth is flatlining: The latest figures show GDP fell by 0.1 per cent in March and increased by just 0.8 per cent in the first three months of the year.
Consumer prices inflation, according to the ONS, has now hit 9 per cent and is forecast to go higher still.
What we are seeing is the aftermath of the pandemic combined with geopolitical upheaval – war in Ukraine, of course, but also unrest in places like Sri Lanka.
Covid-19 had already caused supply chain bottlenecks and rising freight prices. The war has exacerbated shortages of food and commodities including wheat and sunflower oil, along with dramatic energy price hikes.
The result has been surging inflation and a cost of living crisis worse than anything for the past 40 years or so.
Inflation is now expected to hit a peak of 10 per cent – five times the Bank of England target – and interest rates are forecast to carry on rising.
This will result in more strain on mortgage holders at a time when they are already finding their wallets stretched.
As a very open economy, the UK is highly exposed to geopolitics. We are also highly exposed to mismanagement by our own politicians and central bankers. T
he Bank of England has been far too complacent over inflation and its failure to respond quickly enough means rates may now have to rise higher than if it had reacted promptly.
And the Chancellor, Rishi Sunak, has pressed ahead with National Insurance increases despite loud pleas for mercy. So we face a double whammy of fiscal and monetary pain at the same time.
GDP growth is expected to tail off and the economy could potentially shrink and see recession next year in this Bank of England forecast
The pound has been falling heavily against the dollar, losing around a tenth of its value compared with the greenback since the beginning of last year, as traders fear stagflation – a toxic mix of soaring inflation and stagnant growth.
A lower pound means imports cost more, which in turn means even more inflationary pressure. Families will have to contend with much higher household bills and the poorest, including pensioners, will be hit hardest.
The one major bright spot is that unemployment is very low, and there are actually more vacancies than job seekers, so the horrors of the 1980s recession with its long dole queues are at this point remote.
The ‘accidental savings’ built up by some individuals during the pandemic will cushion the blow for some, and a large proportion of borrowers are on fixed rate home-loans so will not be hit by immediate pain.
But the strong bounce back in the UK economy everyone had hoped for this year is nowhere on the cards, and tough times lie ahead.
Rate rise essentials: Find the best mortgage or savings deal for you
The cost of new mortgages has risen rapidly over the past six months but rates remain low by historic standards.
Savings rates have also risen and best easy access and fixed deals are considerably higher than they were.
This is Money’s mortgage finder, powered by L&C, can help you compare rates.
Meanwhile, our independent best buy savings tables show the top deals on offer – and our savings platform round-up has details of how to manage your money in one place and earn boosters.
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