How to survive during a recession

UPON hearing the news that the UK fell into recession towards the end of 2023, many people are understandably anxious. After all, recession – defined as ‘a fall in gross domestic product (GDP) across two consecutive three-month periods’ – invariably introduces a wave of uncertainty, particularly around financial stability.

This particular recession came about as a result of the UK economy shrinking by 0.3 per cent – a not insignificant amount. This followed previous reductions between July and September, while the annual growth for 2023 stood at a mere 0.1 per cent.

But how do recessions affect the average person on the street and what can they do to lessen its impact?

Often, one of a recession’s most immediate impacts is rising unemployment.

Companies may downsize or even close down altogether, leading to job losses and reduced job security, with individuals facing lay-offs or reduced work hours, both of which will negatively impact their income and financial stability and make it challenging to meet their financial obligations such as mortgage payments, the rent or utility bills.

Recessions also often coincide with decreased consumer spending, resulting in reduced income for businesses and individuals alike, while the impact on the housing market may result in declining property values.

This can make it difficult for homeowners to sell their properties, while renters may also face challenges, such as rent increases or difficulty finding affordable housing.

During recessions, lenders may tighten their lending criteria too, making it harder for individuals to access credit as they suddenly need a better credit score or a larger down payment to qualify for a loan. This can be particularly challenging for those who rely on credit cards or loans to cover expenses or manage debt.

Beyond the financial implications, recessions can also take a toll on mental health and wellbeing.

The stress of financial uncertainty, job insecurity, and economic instability can lead to anxiety, depression and other mental health issues.

Fortunately, it is possible to protect yourself and your finances before and during a recession, so it’s important to try and be proactive during times of economic stability. Try to ensure you have a financial safety net in place, such as savings or access to credit, to cover expenses. Prioritise essential expenses over treats and luxury items. Seek out financial assistance or debt management advice if necessary.

Consider exploring housing options carefully and seek advice from housing experts or financial advisers.

Prioritise self-care, seek support from loved ones and access mental health services if needed during financially challenging times.

Attempt to maintain a good credit score and consider exploring alternative sources of credit, such as credit unions, who may offer more favourable terms and lower interest rates.

Credit unions can also help people weather financial storms by providing guidance and tailored services – such as affordable loans and budgeting advice – to safeguard their financial health.

If there’s one positive to cling to, remember, recessions don’t last forever.

Mark Fleet is CEO of Leeds Credit Union.