What would a double dip recession mean to you?

The British economy is on a knife-edge having narrowly avoided the ignominy of slipping into a double dip recession, according to one industry expert.

The Confederation of British Industries (CBI) recently published research on the economic growth outlook for 2012 and suggested that the UK is NOT heading towards another recession.

Despite this, two other surveys imply that this is not the case. International accountancy and audit firm, BDO, suggests that UK company turnover is likely to continue falling over the next 12 months, meaning the economy will not recover and that recession is looming.

BDO are not alone in holding this view, the Chartered Institute of Personnel and Development (CIPD) found that employers are likely to reduce their workforce, pushing more households into unemployment.

Mass unemployment is continuing to rise, with few signs of stopping. Whilst the rate of unemployment has fallen slightly, figures from the Office for National Statistics (ONS) show that 48,000 people became unemployed in the three months up to December.

The total jobless rate now stands at 2.67 million. Speaking to the BBC, Vicky Redwood, economist at Capital Economics, commented on the figures; “We continue to expect unemployment to rise much further in response to the weakness in the wider economy.

“At least with inflation falling, the squeeze on real pay is easing. But it won’t be for a few months yet until real pay actually starts to rise again.”

The CIPD warns that unemployment levels could hit a staggering 2.85 million unless the economy improves in the near future.

Whilst leading industry experts claim that it’s all doom and gloom, the CBI claims that the economic conditions are not so bad that the UK will fall into another recession.

John Cridland, CBI Director General, commented on CBI predictions for the next 12 months; “Economic conditions will continue to be tough, especially in the first half of the year, and the UK recovery will depend on the successful resolution of the Eurozone crisis.”

“But some activity has picked-up since before Christmas and the mood among many businesses has improved, with the exception of companies serving the UK consumer where business remains flat.”

If the UK falls into recession again, what would happen to you?

Your mortgages

There has recently been a rush of first time buyers hitting the property market before the end of the stamp duty holiday in March. This short burst of activity could inject fluidity in the housing market for the rest of the year. At the same time, however, with another recession potentially looming, banks might be quick to clamp down on mortgage lending to avoid a repeat housing crash, seen in 2008.

Despite this flurry to beat the stamp duty deadline, house purchases have actually fallen to a 27-year low. According to research from the Council of Mortgage Lenders, a property market freeze saw homebuyers hit the lowest level for 27 years.

Just as banks and lenders were beginning to offer low mortgage rates to entice buyers, and property prices continued to fall, buyers have been spooked off by the simple fact that saving for a deposit is near impossible under the economic climate.

Your incomes

If a recession was to strike again, wages could remain frozen.

This is dependent on a number of factors, including inflation. Inflation has fallen to a 14 month low for January, marking a good start to the year for personal finances.

Inflation fell by a dramatic 4.2% in December to 3.6% in January, putting more spending power back into the pockets of consumers, meaning that wages carry more ‘real’ value. The Bank of England has increased its inflation decline prediction as the economy wobbles. The bank now believes inflation will fall to 1.8% by 2014, rather than the original estimate of 1.3%.

Yet, despite hopes for lower inflation, the cost of living is soaring as the price of transport, accommodation and general everyday essentials increases.

“The pressure on household incomes will also ease slightly in the second half of this year as inflation falls, resulting in a slight increase in consumer spending. But weak wage growth and high levels of unemployment will continue to be a brake on household spending,” said John Cridland, CBI Director General.

According to further ONS figures, the average pay has failed to keep up with the rate of inflation. In the private sector, wages have risen by just 2% while earnings in the public sector have increased by just 1.7%. However, this is not even close to the rate of inflation, at 3.6%.

Female full time workers in the North- West of England have seen their pay drop more than anyone, by a staggering 7.4% annually. If the UK is heading towards a recession, then the figures could get worse.

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Posted by: WarrenWilson Categories: Finance Tags: , , 5 Comments

5 Responses to What would a double dip recession mean to you?

  1. avatar Andrew says:

    Inflation falling doesn’t mean things become cheaper again. It just means they rise in price at a slower rate. People are taking pay cuts rather than getting pay rises. We’re going to be poorer as a result. And all because some people want to keep house sale prices high – not me.

    • avatar Nanci says:

      Yeah, you are naive. You think the housing ubbble won’t affect the people just because its only the property developers who have debt. The only difference between the Chinese and the US housing ubbble is the route it takes before it hurts the normal people.So what will happen when the ubbble collapses. Obviously property developers will go bankrupt. Land prices and sales will go down, and because local governments depend on land sales to run they too will also go down. The construction industry in general will collapse because developers don’t have money to build. For example cement makers, pipe makers, glass makers for windows, etc will all suffer. This will also mean that companies that sell iron, copper, and the raw resources for cement will suffer. Financially it is the people who will suffer despite the fact that local governments and developers no longer have anyway to pay the banks back for the loans they have gotten, the central government will bail them all out with the people’s money through negative interest rates, which are like hidden taxes.That means lower consumption, which is bad because China is trying to get away from an export economy by making chinese consume more of the products that it produces. Which also translates into less consumption of foreign goods.All of the above also affects countries such as Canada and Australia(exporters of commodities), Korea, Japan, and Germany(exporters of consumer goods). As a result people in those countries don’t spend money and consume less.This affects Chinese exports and will hurt the Chinese people even more. Beyond that there is psychological damage. After the housing ubbble no one will ever look at China the same way. People believed and trusted in China because it looked so infallible. However if the ubbble pops and China is severely damaged that illusion will be gone and people will turn away from China the same way people have turned away from the US three years ago and Japan 23 years before that. So yeah, you are naive.

  2. avatar jennie says:

    I am trying to buy a house, I am older no job, no mortgage, but too many overinflated house prices for poor second hand housing stock mean I can not buy at all at the moment, average house prices are too much for most people, with the best mortgage deals around people should not be buying so much debt, It is prices that need to reduce for everyones sake, or there will be another false dawn, it is all relevant.

  3. avatar Ben says:

    House prices are being prevented from falling to what should be their true values by three groups; the banks (who are reluctant to lend because they know the houses are overvalued, plus they seem to be really reluctant to force people who are defalting to be evicted at the moment), the government (who won’t release new land and continualy come up with new incentives to help people get into the market) and the building industry. This artificial situation is really bad for those not in the market (including myself!!) but can you imagine the economic carnage if there was another dramatic correction in the price of housing? It is a crap situation now, but it is better than the alternative.

  4. avatar Pissamai says:

    Maybe I am naive, but I’ve never really uodrestond the reporting on the Chinese property bubble. This is a good article. I’m not faulting the writer. But I still don’t get it. Yes. There are a lot of vacant apartments. But there is also a population of 1.3 billion people. How many hundreds of millions of those people need apartments? So even if prices are falling, it seems there already exists a pool of potential buyers. What separates the property from the buyers basically is the price of entry.The housing bubble in China is very different from what happened in America. In the US, the home-owners were over-leveraged. And the banks that lent to home-owners themselves were over-leveraged. But IIRC, the bulk of the loans went to owners & not to developers. Also in the US, the price of entry into home-ownership was much lower. Down payments were smaller than what is required in the PRC. And many owners got into homes without any down payment at all. That’s not the case in China. It is the developers who are in trouble & the banks that lent to developers. The owners themselves only stand to lose their investment or a share of it. And unlike Americans, Chinese owners made a substantial down payment to get in. So I just don’t get it. This is a good article. But it seems to me that food and fuel inflation are a lot more dangerous to the PRC than the housing bubble. Maybe I’m wrong about that.