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Recession 2020: What happens during a recession? How does a recession affect me?

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What is a recession?

A recession is a significant decline in economic activity which can last for several months or even years.

Experts declare a recession when a nation’s economy experiences negative gross domestic product (GDP), rising levels of unemployment, falling retail sales, and contracting measures of income and manufacturing for an extended period of time. 

Many economists and experts disagree about the exact definition of a recession, but technically speaking, the UK economy slides into recession when it experiences two successive quarters of what is known as “negative growth”.

READ MORE: What is a recession, what does a recession mean for me?

Recession 2020: What happens during a recession? (Image: GETTY)

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Recession 2020: The UK economy shrank by 20.4 percent during the second quarter (Image: GETTY)

Is the UK in recession?

The ONS published a report this morning declaring the UK had officially entered a recession.

The report reads: “The economy is in a technical recession after Quarter 2 (April to June) 2020 saw a record fall of 20.4 percent, following a significant shock since the start of the coronavirus (COVID-19) pandemic; this follows a fall of 2.2 percent during Quarter 1 (January to Mar) 2020.”

This means the economy shrank 20.4 percent compared with the first three months of the year.

Officials said the economy bounced back in June as government restrictions on movement started to ease.

The report further found monthly GDP rose by 8.7 percent during June 2020, but is 17.2 percent below February 2020 levels.

Analysis of our Monthly Business Survey (MBS), which is a collection of information on monthly turnover of UK businesses within the production and service sectors, returns and external data, including comments from more than 10,000 businesses, had increasing output as demand had increased following the easing of social distancing and lockdown measures.

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Recession 2020: A recession is a significant decline in economic activity (Image: GETTY)

Recession 2020: A chart tracking the performance of GDP in the UK for the past two years (Image: ONS)

The organisation added businesses are striving to maximise output while working within official guidelines.

Services experienced widespread growth in June 2020, where the easing of lockdown measures, most notably in England.

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This had a most positive impact with nearly half of growth from the wholesale and retail trade; repair of motor vehicles and motorcycles sector.

Manufacturing and construction also saw widespread growth during June 2020, primarily because of increased demand and the recommencement of work, as businesses managed to operate while adhering to social distancing measures.

What happens during a recession?

A recession has a huge impact on the economy which subsequently impacts individuals and businesses.

Generally unemployment tends to rise quickly during a recession and often remain elevated.

In addition, with the onset of recession as businesses face increased costs, stagnant or falling revenue, and increased pressure to service their debts they begin to make workers redundant in order to cut costs.

The number of unemployed workers across many industries spikes simultaneously and newly unemployed workers find it difficult to find new jobs during the recession.

Furthermore the average length of unemployment for workers increases.

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Recession 2020: The ONS published a report this morning declaring the UK had officially entered a recession (Image: GETTY)

How does a recession impact you?

Recessions can have a huge impact on individuals, families and businesses.

One way in which it might affect you is by putting many jobs across different sectors in jeopardy.

Job loss affects the stability of families and individuals and during a recession unemployment rates run extremely high.

Those who lose their jobs can find it extremely hard to find new work to buy food and pay the bills each month. 

Employers are unlikely to hire many new staff members during a recession as the economy is uncertain meaning companies will endeavour to keep  their costs down.

These financial struggles can also put familial relationships under pressure due to the pressures and impact of financial instability.

Recession 2020: A timeline of when lockdown restrictions were eased across Britain (Image: ONS)

Many families may need to borrow money from relatives, friends or banks which can cause relationships to become tense.

During a recession hospitality, leisure and entertainment businesses tend to be hard-hit by people’s reduction in discretionary spending. 

Families and individuals tend to tighten their belts and cut back on spending on extracurricular activity expenses.

Entrepreneurs may have a lack of funds available for borrowing or starting new companies during a recession, which means certain sectors could remain stagnant with no or low new entrants into these markets.

Businesses are also unlikely to take financial risks at this time leading to further stagnancy.

During a recession property values fall drastically and foreclosures increase meaning many families could be forced out of their homes.

However, for those able to buy during these difficult times, property is considered by some to be a relatively safe investment and it is a good time to buy as property prices will be lower than outside of a recession period.

Others say it is wise to avoid investing in property at this time, however, as people may choose not to sell their homes at such an uncertain time so the inventory is lower.

This can mean that those homes which do go on the market may end up as a bad deal, with some potential issues.

The Government has implemented a stamp duty holiday on the first £500,000 of all property sales in England and Northern Ireland until March 2021 in a bid to encourage buyers.

However, many buyers who were hoping to use a 95 percent mortgage have been unable to buy in recent weeks as several lenders are no longer offering these mortgages meaning they have been forced to increase their deposit amount before buying.

Source Daily Express :: City and Business Feed

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