Is there a recession coming in the UK? How to protect your savings and investments in 2022

The pressure on households in Great Britain is building. The cost of living crisis is looming and low interest rates mean the value of our money is falling fast.

The central bank hiked interest rates from 0.75 percent to 1 percent in April 2022 to combat rising inflation — but there’s no guarantee this will be enough to keep prices low enough for troubled households.

Many people can still feel the lingering effects of the 2020 Covid recession, but so far the UK economy has made a remarkable ‘V-shaped’ recovery. Experts believe the country is on track to surpass all other G7 nations for the second straight year in 2022.

But the ongoing uncertainty surrounding Covid means continued growth is no guarantee. The UK economy grew 7.5 percent overall in 2021, but that included a 0.2 percent contraction in December.

A recession can wreak havoc on people’s day-to-day finances, as a weaker economy usually means wages fall and layoffs rise. Telegraph Money explains what a recession is and how to protect your money from the negative effects.

What is a recession?

When a country runs smoothly, the value of the goods and services it produces increases – its gross domestic product.

But in times of economic downturn, this value decreases. A recession is when GDP falls for two consecutive three-month periods and is a sign that the economy is weakening.

How likely is a recession in the UK?

The UK economy is recovering well from last year’s pandemic-related recession. The Bureau of National Statistics said GDP contracted 0.2 percent in December. However, GDP for the last three months of the year was 1 percent higher than in the previous quarter.

Given that a recession means two periods of contracting GDP, this seems unlikely for now.

How to protect your money during a recession

Pay off debt and build money

All economies go through natural cycles of expansion and recession. In the latter case, try to pay off any expensive debt you may have, such as credit cards. If you have multiple debts, approach the loan with the highest interest rate first, then move on to the next.

If you don’t have enough cash to pay off your debt, see if you can switch to a cheaper plan. This may only offer temporary relief, but it will give you more time to organize your finances and keep your debt from growing so quickly.

If you have money to spare, you should also try to build an emergency cash fund. This can help you protect yourself from unexpected bills or even cope with a spell of unemployment. It’s a good rule of thumb to set aside three to six months of your average spend.

Keep investing for the long term

While a recession often takes a toll on people’s finances, it can also be a good opportunity to invest. However, you should only consider this if you already have a healthy emergency fund and are comfortable with the possibility of losing money.

Jason Hollands of brokerage Bestinvest said: “While recessions are undoubtedly painful for the real economy, they are increasingly leading to actions that end up being very positive for investors.”

A recession calls for a more “defensive” investment style, which means choosing stocks to buy and funds that are typically resilient through all stages of the economic cycle.

Mr Hollands referred to the consumer goods sector. While spending typically falls during recessions, everyday items like toilet paper and tea bags rarely suffer.

“Stocks like Unilever, Reckitt Benckiser and Procter & Gamble would fall into this category, each of which has a wide range of household brands,” he said. Is there a recession coming in the UK? How to protect your savings and investments in 2022

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