The Bank of England has warned that the UK will fall into recession this year. Knowing this, many people are likely to be worried about what this means for their finances. For people who have retired, especially, the current financial crisis is a major source of anxiety. However, often it is the uncertainty that leaves our loved ones most concerned. To help alleviate some of these worries, we are looking at what the recession means for you and your loved ones.
What is a Recession?
Most of the time, the country’s economy is in a state of growth. This means that, generally, there are more jobs and companies are more profitable. Economic growth is reflected in Gross Domestic Product (GDP), which measures the value of goods produced in a country. A higher GDP suggests that people are getting richer.
However, if GDP drops for two quarters in a row – that being a decrease in GDP over six months – then the economy is in recession. This means companies are making less money, which means they cannot afford to pay their employees as much – and may need to let some go. With less money going into people’s pockets, less money can be spent on goods or paid in taxes, which affects where the government can invest the budget.
This has a detrimental impact on people across the country.
What Caused the Recession?
A recession can be caused by any number of factors. This recession is linked to a sharp increase in inflation over the past year. Inflation is an increase in the cost of goods and services. Currently, the rate of inflation is outpacing any rise in income. Comparatively, the current recession is making it appear that incomes are dropping.
The UK economy hadn’t fully recovered from the coronavirus pandemic when additional factors came into effect. Increasing food and fuel prices, triggered by Russia’s invasion of Ukraine, have been a major contributor to the current financial crisis.
Recession or Depression?
The good news is that things are not so serious that we have entered a depression. A depression is marked by a sharp downturn in GDP that causes widespread unemployment and contributes to the collapse of many companies. Whereas recessions tend to be localised in one country or economic region, depressions can affect economies all around the world. Currently, there are no signs of the current crisis reaching this level, so this is not something to worry about.
How Will the Recession Affect Me?
The truth of the matter is that a recession will affect everyone. Prices are increasing and the job market is shrinking. Interest rates on loans and credit payments are also going up. This means that everyone is spending a little more, and for many that means money is tight.
One of the biggest concerns for many will be the impact of the recession on their savings. For the elderly, particularly, pension savings are a worry. With the current rate of inflation, interest rates on savings are not keeping pace. If you are using these savings more often, you may worry that you won’t be able to replenish them.
For people who are still some years away from retirement (five or more), there is still plenty of time for a pension fund and savings to recover, especially if you pay in a little extra once inflation stabilises. If you are closer to retirement, however, or have retired recently, you may find that your pension doesn’t go as far as you hoped it would.
It may be tempting to dip into your pension fund and withdraw a larger sum to help cover rising costs and supplement your income, but this should be done cautiously.
Withdrawing money from your pension can help to cover costs but will leave you with less to use later. It may also reduce the size of any regular payments. Furthermore, receiving a large sum could impact any benefits you receive, which could ultimately leave you worse off. Doing so too close to retirement could mean you do not have time to replenish any money you withdraw.
Mortgages
Another concern during the current cost of living crisis, and threat of recession, is mortgages. If you are currently paying off a mortgage, you are likely wondering how changing interest rates will affect you.
Fortunately, it is not thought that mortgage interest rates will rise to the same extent as other interest rates in the UK. Therefore, if you are currently comfortable with your mortgage payments, they are unlikely to become problematic. Naturally, however, households on lower incomes are more likely to struggle as disposable income will be limited by rising prices.
For anyone planning to apply for a mortgage, banks and lenders may be less likely to accept an application due to the current financial crisis.
What to Do if You’re Worried
It is natural for the idea of a recession to causes stress and worry. However, support is available, especially for those who are most vulnerable.
Be sure to read our guides on pensions and benefits to ensure you are getting all the financial support you need.
And as we approach winter, be sure to apply for your winter fuel payment if you are eligible.
For additional advice and support, you can also contact Citizens Advice.
Extra Reassurance from Careline365
When money is a worry, it is especially important to look out for your own wellbeing. With a personal alarm from Careline365, help is available 24/7, 365 days a year. All you or your loved ones need to do is press the button on the pendant alarm. An alert is sent to our Care Team who will arrange support by informing emergency contacts and, if necessary, the emergency services.
Careline365 offer a range of products and plans to suit your needs and budget. You can find out more by reading our in-depth guide or visiting the order page.
For any further questions about the Careline365 service, please do not hesitate to get in touch by calling on 0808 304 4719.
