The Salary Calculator

With slow growth following the pandemic and the skyrocketing cost of living, experts have warned that the UK could be heading towards a summer recession. According to research, consumer confidence is now at its lowest in years, even lower than the 2008 financial crisis. This near-record low is indicative of an economic downturn. It’s not just the UK that’s headed for trouble, either, there is a cloud forming around the global economy.

With so much instability and uncertainty across the UK, it’s understandable that many will be concerned about this news, and at The Salary Calculator, we’ll walk you through:

• What the economy is looking like right now
• How a potential recession could affect personal finances
• How you can safeguard yourself against a potential recession

Is there a recession ahead?

A recession, by definition, occurs when negative economic growth takes place across two successive quarters. According to financial forecasts, the economy is likely to shrink by 0.2% between April and June. Recently, the pound also hit its lowest level against the dollar since September 2020.

So, while it’s not imminent, experts say the risk of a recession is rising. Early this month, Deutsche Bank’s chief UK economist Sanjay Raja said: “We continue to think that the risk of recession remains on the rise,” adding: “This is something we will be tracking very closely in the coming months. Consumer confidence data is already consistent with recessionary levels.”

Commenting on the financial forecasts by the industry, Abena Oppong-Asare, shadow exchequer secretary to the Treasury, said that while the figures are “concerning,” they come as “no surprise,” referring to what she called the “double whammy” of the National Insurance increase alongside soaring energy bills.

She added: “Collapsing consumer confidence shows how the cost of living crisis is weighing down growth. How many warnings like this does the chancellor need to grasp the seriousness of the cost of living crisis?”

How might a recession affect you and your personal finances?

Recessions can have a hugely devastating impact on personal finances. Businesses, especially small businesses, typically take a big hit when a recession swoops in. This can result in companies pursuing redundancies, cutting jobs, and pausing new hires. Of course, this can have a knock-on effect on employees. Back in the 2008 recession, unemployment reached its highest rate since 1995 at 8.4%.

Of course, job losses can lead to subsequent financial difficulties, for example, challenges paying bills, mortgages, and rent payments, which can lead to individuals taking on debt to cope. Alongside this, recessions often lead to ​​reduced economic output and consumer spending falls, too.

How can you safeguard yourself against a potential recession?

With so much discussion around the state of the economy, and lots of undeniably concerning headlines, it’s likely that many are worried about what might happen to their personal finances, and will be seeking to find ways to safeguard themselves. However, it’s important not to panic, and note that there are steps you can take to protect yourself and your savings.

With increasing taxes, record inflation, and soaring living costs in the current financial climate, it may be difficult to put some money away and save. Experts, however, recommend that in the midst of a recession, people should try to build up some kind of emergency fund. Typically, common sage advice is to build an emergency fund equivalent to six months’ worth of expenses. This can be done through small contributions, and you can even set up automatic payments to inject money into your emergency fund consistently.

Another way to protect yourself in the face of a potential recession is to cut back on your expenses. Take a look at your overall lifestyle and see if you’re overspending money, or if there’s a subscription you wouldn’t miss and could cut out. Douglas Boneparth, president of Bone Fide Wealth and a member of the CNBC Digital Financial Advisor Council, says it’s a good idea to take stock of your whole life, too. He recommends individuals ask themselves the important questions: “How do you feel about your job? Do you feel safe? What is the risk in your life right now? Did you just have a child? … Are you in good health?” After taking time to reflect on one’s outgoings, creating a reasonable budget is much more doable, and it can also make clearing your personal debt a bit easier.

Some experts advise diversifying and drip-feeding investments. Gold is a go-to for some. According to Adrian Lowry, writing in The Independent, gold has been “lauded variously as a hedge against inflation, a counterpoint to a weakening US dollar, a safe haven in times of crisis, and something to hold in portfolios that are not correlated to equities, as a diversification asset.” That said, it’s also important to be aware that gold is fairly volatile and can be subject to significant price fluctuations, meaning that it can dramatically drop in value as well as increase.

On the other hand, Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, recommends that people do not shy away from investment, but if worried about investing their savings in one place, they should drip-feed investments instead. She explained that this enables you to “benefit from pound-cost averaging by continually adding to your investments through different market conditions and economic cycles.” Investment Strategist Whitney Sweeney at ​​Schroders also says that diversification “is key.”