The UK economy has been in turmoil for almost a decade and, after five years of lost growth and an ever-widening gap between the wealthiest and poorest households, it’s crunch time. Is the end in sight for the nation’s economic suffering? Or is there going to be a recession in 2024?
What is a recession?
A nation’s economic health is verified by its GDP – Gross Domestic Product. This is a measure of the value of all the goods and services produced by a country in a specific time period.
If the GDP declines, the economy shrinks. When this negative growth continues for two consecutive quarters, the country is said to be in a recession.
What is the UK at risk of recession?
Brexit, the pandemic, and the outbreak of the Russia-Ukraine war caused uncertainty and interruptions in the supply chain. As businesses struggled to meet consumer demand while covering rising costs, prices climbed across almost all sectors which caused the inflation rate to increase.
This spike in inflation made households poorer in real terms, limiting consumer and company spending. This cost of living crisis has caused economic activity – and therefore the GDP growth rate – to take a downward turn.
How likely is recession in 2024?
Despite the Bank of England raising interest rates from 0.1% – 5.25% in two years, inflation remains high in the UK. Raised interest rates help to control inflation by making borrowing less viable and incentivising saving, thus reducing the economic spend and stabilising product prices.
However, a sudden introduction of high interest rates can significantly impact upon GDP growth as demand plummets and businesses take measures to cut costs. High inflation plus weak growth is the combination that led to the economic depression in the 1970s.
So far, the UK is maintaining minimal growth of 0.4% and so has avoided a recession this year. However, the National Institute of Economic and Social Research has said there’s a 60% risk of recession at the end of 2024 as UK output is unlikely to return to pre-pandemic levels before next autumn.
Without a focus on faster growth, there is every chance that the economy will contract in the new year causing two quarters of economic decline.
How to invest during a recession
The boosted interest rates make banking an appealing investment option during a recession. Savings accounts are secure and offer decent returns on your money. However, they can be limited in terms of flexibility – for example, you might only be able to access the higher interest rate if you don’t withdraw your money.
Investing in stocks and shares is a more flexible option, and thanks to trading platforms providing analysis and easy portfolio management it’s never been more accessible. However, investors should take time to research the risks of investing in the stock market before getting started.
During economic downturns, assets experience wild price swings. This makes it difficult to predict not only which stocks and shares will be successful, but also their risk level. Losses can quickly turn to profits – and vice versa.
Make sure to put safeguards in place to protect your investments from turbulent shifts in the stock market. This might include adding stop losses which trigger the sale of your shareholding when the bid price falls to (or below) the price you set.
