What Is A Recession | Banking Direct

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What Is A Recession?

The technical definition of a recession is 2 consecutive quarters of GDP decline...but this narrow economists definition would mean, as I write this that the UK is not in a recession by the definition.

Like everything to do with economics, it's a lot more complicated than that. Some industries have been in recession for years...think of coal mining and ship building. They have had a 30 year recession. More appropriately, they have been savaged by foreign competition. Even though they might not have been in decline recently, they are in a long term trend decline, so the term recession is like a technical definition to define the volume a puff of smoke. It just depends where you are and how you see it.

During the coming recession (does anyone apart from economists really believe that it isn't already here?) we can expect to see some marked shifts in economic activity. Interest rates are likely to fall, but who does this help when the credit markets are frozen. The price of goods is likely to fall as well as inflation falls back to reflect a lack of demand for commodities as spending is scaled back. Discretionary incomes are being squeezed, so discretionary expenses are likely to suffer. Already, the pubs and clubs are suffering as people stay in and take less expensive options or a few drinks from the supermarket.

We all know that credit will be much harder to get, and not just for the foreseeable future. The very nature of credit markets are likely to be rewritten after this sham and it could signal a shift back to responsible lending while the mistakes of the past are still fresh in the memory.

Unemployment will rise and is now rising fast, that's a given...but my feeling is that it will get much worse than even some doom and gloom merchants are forecasting. The banking system will look very different as a few mega banks dominate the UK and the US and competition could well be affected here.

There is one thing for sure, the generation coming through will have a much healthier respect for debt and savings that the current generation...and that can't be a bad thing.