UK recession: What is a recession, what happens in a recession, and is a recession likely in 2022?

Experts are divided on whether a recession in the UK is likely.

Tuesday, 14th June 2022, 9:24 am
Updated Tuesday, 14th June 2022, 9:24 am

The UK economy contracted for the second month in a row in April in the first back-to-back fall since Covid struck in 2020 as the cost-of-living crisis brought Britain's pandemic recovery to an abrupt end.

The Office for National Statistics (ONS) said gross domestic product (GDP), a measure of the size of the economy, fell by 0.3% in April, with all three main sectors suffering a fall in output for the first time since January 2021.

April's month-on-month drop in GDP was also the biggest contraction since January 2021 and follows a fall of 0.1% in March. Experts had been expecting growth of 0.1% in April. The ONS said it marked the first time GDP has fallen for two months in a row since March and April 2020, when the pandemic first hit and sent the economy tumbling.

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The falling figures have sparked fears of a recession – but what does that actually mean? Here’s what you need to know.

What is a recession?

In the UK, a recession is defined as a negative economic growth for two consecutive quarters. With the GDP falling for two consecutive months, this is still a way off but some financial experts are warning that it could be a possibility down the line.

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The UK economy contracted for the second month in a row in April in the first back-to-back fall since Covid struck in 2020, as the cost-of-living crisis brought Britain's pandemic recovery to an abrupt end. Photo: Dominic Lipinski/PA Wire

What happens in a recession?

Recessions generally happen when there is a widespread drop in spending (an adverse demand shock). This may be triggered by various events, such as a financial crisis, an external trade shock, an adverse supply shock, the bursting of an economic bubble, or a large-scale anthropogenic or natural disaster, like a pandemic.

During a recession, a number of negative effects may be felt. The economy will struggle, people may lose work as companies make fewer sales and their profit margins get smaller. Overall, the country's overall economic output declines and can even affect other countries that have strong trade links or are affected by similar issues.

Is a recession likely in 2022?

Recently, we have experienced at least two events that could spark a recession, with the Covid-19 pandemic and the Russia-Ukraine conflict. That has sparked widespread financial difficulties for many, with inflation rising and the costs of everyday essentials like fuel and food increasing.

The ONS said it is seeing anecdotal evidence widely across the economy of firms being hit by record fuel and energy prices, in particular the manufacturing sector.

"Countries around the world are seeing slowing growth, and the UK is not immune from these challenges,” said Chancellor Rishi Sunak. "I want to reassure people, we're fully focused on growing the economy to address the cost of living in the longer term, while supporting families and businesses with the immediate pressures they're facing."

He recently announced a further £21 billion support package for households to help tackle the mounting cost-of-living crisis, including a £400 discount on gas and electricity bills for every home, with measures part-funded by a windfall tax on energy firm profits. However, there are concerns that more measures will be needed, with inflation already running at 9% in the UK and expected to soar past 10% in the autumn as prices rise steadily higher.

Petrol costs have hit new records, with the average cost of filling a typical family car with petrol rising past £100 for the first time last week. The Bank of England is expected to raise interest rates for the fifth time in a row on Thursday, from 1% to 1.25%, to try to rein in rampant inflation.

Samuel Tombs, of Pantheon Macroeconomics, is forecasting the economy to contract overall between April and June as the cost-of-living crisis hits hard, but still believes the UK will dodge a full-blown recession.

"A recession - two quarters of negative growth - remains unlikely,” he said. "Households' real disposable incomes should rise in both the third and fourth quarters now that the Chancellor has announced an extra £15 billion in grants during these quarters, equal to nearly 2% of their likely income."

Additional reporting by PA.