As the government announced that the UK was in a recession after a GDP fall of 20.4% during the pandemic, the public expressed confusion and uncertainty as everyone began to wonder how the recession will impact their daily lives. This article breaks down what a recession is and how you will be affected in a simple way.
One thing to remember is that a recession was inevitable. As shops were forced to close for over three months, there was little to no consumer spending which resulted in a sharp decline in economic activity.
What is a recession?
In a nutshell, a recession refers to a general decline in economic activity. In this case, the decline in economic activity is directly associated with the government restrictions that were implemented at the beginning of our lockdown. The fall of 20.4% represents the second quarter of the year (April-June), and this is compared to the first quarter of the year (January-March). Shops were still open and consumers were still spending during the first two months of the year. Once the lockdown was implemented, it was guaranteed that economic activity would drastically decline because people were physically unable to spend their money as they usually would.
How is the 2008 recession different from the 2020 recession?
Many people fear that the 2020 recession will be a repeat of the great recession in 2008. No one can accurately predict how the Covid-19 outbreak will impact the economy years from now as we still stand in such an unpredictable position, however what is evident is there is a big difference between these two recessions.
The 2008 recession was a period of consecutive negative growth which resulted in a steep rise in unemployment and financially impacted businesses in the form of increased costs and less revenue.
When the government eased restrictions in June, the economy saw a monthly GDP rise of 8.7% which is a positive sign that once government restrictions are eased further, consumer spending will increase even more. Although we are technically in a recession, it is very much different from the recession of 2008.
How will the recession impact daily lives?
Unemployment has increased during the pandemic as many small businesses have closed down and larger businesses have had to make job cuts to compensate for their losses. This may make it difficult to find work but not impossible. Many companies are still looking for people to fill new roles that have been developed due to the outbreak.
People may be more cautious when it comes to spending, however if the government continue to ease restrictions it is likely that this will become better over time. With winter on the horizon, it’s difficult to predict if there will be an increase in Covid-19 cases resulting in a second lockdown, or if we will be leaving the worst of the pandemic in 2020.
T K Williams-Nelson
Source: Daily Mail