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What is a recession?

What is a recession?Unless you have been hiding in a cave for the last year, you have probably heard and seen reports about recession. Read on to find out what it means and how this one compares to past economic crises.

Unemployment levels are rising, banks won’t give out loans and consumers are spending less. It can mean only one thing - recession has hit the UK.

Recession describes a downturn in a country’s economic activity. Financial experts officially mark the moment a country enters a recession when economic growth reduces over a period of six months in a financial year. This is known as "negative growth".

Negative what?

Financial experts measure economic growth by studying the total amount of goods and services produced by the UK - known as gross domestic product (GDP). They measure this every three months, otherwise known as every quarter.

The UK enters a recession every time the number of goods and services sold are reduced over two quarters.
One of the problems about officially declaring a recession is that one can only confirm it after it has happened.

Official GDP figures are published about every three months by the Office for National Statistics and sometimes its initial estimates have to be revised later when new information emerges.

How bad can a recession get?

There are different degrees of recession. The economy could recede in two consecutive quarters and then recover. This is a mild recession.

However, if economic growth declines on a year-by-year basis, this suggests something more severe.

What has happened in the past?

The UK has faced down five serious recessions, in 1974, 1975, 1980, 1981 and 1991.

In 1991, the economy experience negative growth over three consecutive quarters and annual GDP fell 1.4% compared with the year before.

How does this affect you?

As you’ve probably already noticed, money is tighter during a recession.

Living costs rise while incomes are squeezed and unemployment levels grow. This makes consumers more cautious about their spending, further harming the economy. Before the latest recession hit, there were fears that the country talked itself into the crisis, which had the knock-on effect of curbing consumer spending.

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