Recession is a term that has been used a lot in the media for the least year or so, with the economic turmoil causing more and more people to worry about it. But for many people the word recession is just a word, they have no real idea of what it means.
 So what is a recession?
Technically for the UK to be described as being 'in a recession' the UK work need to have gone through two quarters (6 months) of what is known as 'negative growth'. What that means is that the goods and services produced by the UK (the GDP or Gross Domestic Product) would have to decline for 2 quarters running.
Levels of recession
As ever, when you are dealing with definitve figures, interpretation is as important as the actual facts. For example if we were to experience to drops in GDP of 0.5% we would be in a recession, but should we then see to growth rates of 1.% to finish the year it would still have been a good financial year.
 So before one worries about the term recession it is important to have a look at what is going on around it. Has there been sustained growth? What are the projections for the upcoming years etc.
The 'recession factor'
Being in a recession isn't, in and of itself, a major issue. Whilst there should be some concern all markets have their peaks and troughs so this sort of thing has to be expected. The problem comes from a variety of other factors.
- The psychological issue.
When it has been declared that the UK is in a recession people instantly become far more cautious with their money, meaning there is less in circulation and companies are making less profit. Debt companies start tightening their criteria for lending and banks are stricter about who to give loans to. This starves some companies, who often rely on lines of credit, of money.
Therefore the psychological issue that accompanies being in a official recession can have far more of na impact than the initial economic factors that took it there.
- After the facts
The decleration of a nation being officially in recession really only happens after the economy has already been under severe pressure. As a result many people will have been struggling financially for a long time, but this is only just starting to be brought to the attention of those involved.
This allows politicians time to bury their head in the sand, and means that often solutions don't start getting planned until we are well into a downward economic spiral.
Recessions are tough times for people, with less credit, less jobs and companies making redundancies and cut backs. At least understanding what a recession is can help you plan for what it might mean to you. |
