Bleak news for mortgage borrowers indicates that the United Kingdom is in a recession. With billions wiped off the value of global stock market, industries across many sectors in crisis, and the consumer up against the wall – surviving the recession financially intact is a question on many minds.
Despite the launch of emergency interest rate cuts and the government spending £500 billion in an attempt to keep the banking system above water, the future economic picture is not quite the masterpiece it was this time last year.
The International Monetary Fund has reportedly warned the world economy is in a downward spiral caused by the worst financial crisis since the great depression of the 1930’s.
Those in charge hold the key to improvement – Synchronised action by the central banks was comforting to investors. The Fed, The Bank of England, European Central Bank and the national banks of Sweden, Switzerland and Canada have together reduced interest rates. Analysts are reportedly positive about the impact of the British government’s £500 billion attempted rescue plan, but say it will take time for the economic system to return to normal. A dramatic 1.5 per cent cut by the Bank of England in November 2008 could pave the way for recovery.
Gold is the way forward – in the recession of the 1970’s severe inflation made it almost impossible to get a return on anything other than gold. Investors have allegedly been queuing to buy physical gold from brokers including ATS Bullion. If this sounds like a colourful option but you don’t want the responsibility of arranging storage and insurance, Gold Bullion tracks the price with each share representing one tenth of an ounce held in HSBC vaults. It is reported to cost 0.4 percent a year on top of dealing costs.
Assess your job situation – In a recession, no one is immune to being made redundant, it is argued that people in housing, real estate or finance are particularly susceptible. People that rely on sales commission to bump up their salary could also see their income affected by the recession. One option if concerns about your job arise could be to investigate or consider training for a new career.
Build an emergency fund – It is advisable to have at least three to six months living expenses in a safe and secure place such as a savings account or a money market fund, if necessary splitting your money between banks. This provides both security and accessibility if and when it is required.
Watch your position – during a recession it is never clear who or what will be next to face turmoil, though banks have a big safety net now in place, retail and property companies could be next to run into trouble. In light of this it is recommended that you are aware of your circumstances and how you would be affected by these possibilities.
Pay off credit cards and existing debts – it is assumed that many people use their credit cards as a ‘rainy day fund’, however if you pay off your balance now, or when you can, assuming your credit score has not deteriorated, you will be able to borrow more money if times get tough. Also paying down debt should help improve your credit score.
Bag a bargain – a recession can be a good time for stocks, so this may be an excellent opportunity to invest and take advantage and bag a bargain as UK equities tend to discount early in the downturn. It is reportedly advised to invest in cheap banks like HSBC and Swiss-bank; also other low cost stocks that may be worth consideration are BP and technology firm Cisco, Microsoft and Vodafone.
Avoid overspending – with disposable incomes decreasing or disappearing, control your spending. During recessions, it could be assumed that discount shops such as Primark, Matalan and Aldi would see an increase in demand as it is in these shops where people are reducing their expenditure and making cuts yet maintaining their living standards.
Don’t pull out with too much haste – it is very tempting to take your money out of investments when the market is dropping, however this could be a risky strategy. When the market bounces back it is often does so quite suddenly, if you pull out of your investments in a panic, it could live to regret it as you could be missing out on bigger returns.
Don’t panic - during a recession things can be bad, however the media often exaggerate and inflate the extent of the downturn.
The statistics reported are often misleading and unrepresentative. For example Unemployment is increasing at the fastest rate since 1992, however in comparison; it is much lower than any time in the 1980’s.
Petrol and food prices have increased by up to 20% yet other items in the consumer price index are decreasing in cost.
Recession is more often that not short lived reportedly between 12 to 18 months.