Recession and impact on household finances

The Bank of England forecasts the UK slipping into recession this quarter and not returning to growth until 2024. A recession unfortunately is inevitable as the Bank is increasing interest rates to tame domestic inflation and to take the heat out of the job market, while high energy prices put the squeeze on consumer income and spending. This will certainly have an impact on our daily lives and our finances. Unemployment is set to rise as until now the tight labour market has been pushing up prices and this has to be reversed if inflation is to fall. Some 50 and 60 year olds for example who had taken early retirement during the pandemic may be forced back to work to make ends meet, increasing labour supply. To protect themselves, people should cut back on unnecessary expenditure and always review their spending and, if necessary, cut back on their long term regular savings. They should ensure they have enough emergency cash available (usually at least six months of expenditure) in case they lose their job and of course make sure they have income protection insurance if they are unable to work for health reasons. The good news is the government looks like they will provide further support whether in the form of more energy bill rebates or tax cuts. We expect to hear more when the new PM is announced in September.

One of the first things we try and incorporate into a financial plan is an emergency fund. This is usually 3-6 months' of outgoings held in a bank account, which can be easily accessed when needed. Whilst in recession, there can be job losses, and having money you can access whilst you are not receiving a paycheck can be invaluable."