A recession essentially means there is a decline in economic activity which can last for months, or in some cases, years. The Bank of England predicts this will occur in the final three months of the year, and could continue throughout 2023.
Perhaps the most famous recession was the so-called ‘Great Recession’ of 2008 to 2009, which caused financial chaos for millions, sparked by issues in the British banking sector.
It was described as the worst recession in the UK since the Second World War, with household names going bankrupt and the unemployment rate soaring.
But what could a recession mean for your finances? And how can it be navigated?
According to the ONS, the average UK house price dropped by 15 percent from January 2008 to May 2009. While it is not yet clear whether a house price crash will occur, mortgage holders may want to brace.
READ MORE: State pensioners set for ‘rollercoaster ride’ as inflation soars
With the combined news of rising interest rates from the central bank, people on variable rates are set for more misery as their costs will increase.
According to Hargreaves Lansdown, someone with a £300,00, 25 year repayment mortgage on an average standard variable rate could see their monthly payments rise by over £88 per month due to interest rate hikes.
Those coming off fixed rate arrangements could also be set for financial tightening as they face far higher rates than before.
Janet Mui, head of market analysis at Brewin Dolphin, warned: “While over 80 percent of UK mortgages are on some sort of fixed term, those who come to refinance will be in for a shock.
“Two-year and five-year mortgage rates have more than doubled since the end of last year, and well above the levels at any point in the previous two to five years.”
Britons furious as energy price cap will change every three months [INSIGHT]
Money saving tips: Britons could save thousands with summer budget [UPDATE]
Woman, 43, fears rising mortgage rate and ‘crippling’ exit fees [LATEST]
Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown, warned households face “difficult and uncertain times ahead”.
Recessions often bring the potential for job losses, which the expert warned could occur in the last three months of the year.
Top CV explained: “During a recession, companies look for any way to cut costs, including resorting to termination, even for longtime employees.
“Recessions also put pressure on job seekers, who will see fewer job openings and increased competition as they try their hand in the job market.”
As a result, the organisation has warned people to “prepare for the worst” in a similar way to weather-proofing a house before a storm.
This can be done through actions such as finding a side hustle, building a network and updating a CV.
However, Laura Rettie, Editor-in-Chief of Finance.co.uk has warned Britons to stay calm in the face of recession as much as possible.
She explained: “It’s important not to panic and remember that recessions don’t last forever.
“Get your finances in order and pay down any interest-bearing debts as quickly as you can in the coming months.
“Try to put some money aside if you think you could lose your job and make an effort to plan for a period of unemployment. You might want to reduce your outgoings as much as possible.”