There is a lot of talk in the newspapers and on the news at the moment about the UK struggling not to fall into a state of recession, but what exactly does this mean? What is a recession?
In simple terms, a recession is a period of temporary economic decline during which industrial production, employment, and trade reduces significantly. When economic commentators talk about recessions, they use the GDP (Gross Domestic Product) as their reference point or technical downturn indicator.
A recession begins after an economy that has peaked begins to fall too quickly. It comes to an end as the economy reaches a low point before picking up again. Between this dip and its peak, the economy enjoys a period of expansion, with low unemployment, steady wage rates and good trade links and sales. A recession kicks in when economy experiences two successive periods of “negative growth.”
There are different levels of recession, with some less damaging than others, and being easier and faster to recover from. There have been six major post-war recessions, in 1974, 1975, 1980, 1981, 1991 and 2010. All of these economic dips took years to recover from. In the case of 2010, the UK took four years to begin to rise out of trouble, and with economic uncertainty hanging over the country due to Brexit, economists believe that the chances of us dipping back into recession again are high – if we haven’t done so already. One of the biggest problems about declaring a recession is that we can only be sure if one has happened once it is over and the economy heads back towards a period of growth.
Some recessions are certainly more serious than others, and don’t affect just one country at a time. Between 2007 and 2009 there was a global recession which drew attention to the risky investment strategies used by large financial institutions across the world. As a result of this wide-spread global recession, the economies of virtually all the world’s developed countries were damaged.
During a period of recession people have less money to spend; it’s harder for shops and businesses to make money, and to pay other peoples wages. As a consequence, unemployment levels rise.
Recessions, however awful, are a normal part of a country’s economic cycle. Every area of business experiences periods of growth and decline. It is only when several things go wrong with the economy at one, that a recession is declared. So it could be said that at least there will always be a light at the end of the tunnel. Let’s just hope our next tunnel, if we have to go through one, doesn’t turn out to be that long.
Dr Kathryn Bates is a graduate of archaeology and history. She has excavated across the world as an archaeologist, and tutored medieval history at Leicester University. She joined the administrative team at Oxford Open Learning twelve years ago. Alongside her distance learning work, Dr Bates is a bestselling novelist, and an itinerant creative writing tutor for primary school children.