Experts warn that the nation could be headed toward a recession this summer, thanks to sky-rocketing inflation and reduced consumer spending, as households prepare to face the biggest squeeze on income since the mid ‘50s. Slow post-lockdown growth combined with rising living costs as a result of the Russian invasion of Ukraine could lead to a fall in gross domestic product (GDP) two quarters in a row — the very definition of a recession.
This does not constitute advice and advice should be sought in all instances before acting on it. The Financial Conduct Authority does not regulate tax advice.
City forecasters have said that UK GDP was on track to grow by just 1% the first quarter of the year before backsliding this summer. Many people will be kerbing their spending to combat rising living costs, which will impede growth, but yet another factor working against the economy is an additional upcoming bank holiday, which usually cause a drop in economic output, for the Queen’s platinum jubilee in June.
The retail industry is warning of a slowdown in sales thanks to households directing their money to more necessary places — like rising energy costs — as they try to battle the cost of living crisis, with disposable income set to fall by 1.9%, according to Capital Economic group chief economist. This is the biggest drop in recorded history, beating out the one in 1977 by .01%.
Many households might need to dip into their savings or take on debt to stay afloat, if they haven’t taken precautionary measures, that is. Luckily, many do have lockdown savings to tap into, but for the most part it will be the groups of people who haven’t been able to save or have enough income in the first place to invest to avoid the effects of inflation that will be impacted the most.
Even the Internation Monetary Fund has warned that the one-two punch of COVID and the war will be affecting global growth longer than anyone had previously anticipated.
Economists are predicting that the economy will shrink in the second quarter, with forecasts of a technical recession by the third. And even if the numbers don’t technically hit recession levels, it still won’t be a pretty picture.