There has been a lot of discussion about a recession as a result of the nationwide lockdown caused by the coronavirus pandemic. Businesses have lost revenue and had to furlough their staff at the peak of the virus, however, lots of businesses are now back to work.
Whilst this is great news for businesses and employees it was announced that the UK was officially in recession on the 12th of August.
What is an Economic Recession?
Here’s the most accepted definition of an economic recession:
A period in which the gross domestic product (GDP) – the amount a country produces and sells – declines for two or more consecutive financial quarters. In other words, a country’s finances aren’t growing, they’re shrinking.
What Does A Healthy Economy Look Like?
High consumer confidence usually generates more spending, which in turn leads to higher business productivity. Healthy businesses create more jobs and offer higher wages, which then generate more consumer confidence. It’s a cycle that benefits everybody.
An economic recession is the exact opposite of this cycle. It usually starts with a loss of business or consumer confidence. When the majority of people or businesses in a country suddenly stop spending as much money as they usually do, a downward spiral kicks into gear.
The Imapct Of Coronavirus
The virus has brought much devastation all around the world, taking thousands of lives and with it thousands of jobs and livelihoods. As we all know, the need to isolate and being unable to work affected businesses income as well as our own.
Additionally the virus has caused a change to the demand and necessity for certain job roles. There has been a huge increase in jobs such as delivery drivers and shop pickers as everyone switches to buying online.
However, this is nothing compared to the alarming fall in demand for services such as non-essential retail, taxi/travel services. The business which have experienced the most devastating effect are undoubtedly those in the hospitality sector. Café’s, restaurants, and pubs were forced to close their doors for months. Now that they have re-opened they are subject to strict rules and restrictions which limit their capacity. The fact that they are also not a necessity service also affects their success in a nervous climate.
Businesses are losing trade forcing redundancies as the furlough scheme comes to an end. Lost jobs mean that the public has less to spend, and so the cycle continues.
The diagram below shows the pattern of unemployment from the 1930’s to the present day. Whilst the numbers were falling they will most certainly rise in the wake of the pandemic.
Tips To Get Through The Recession
Live Within Your Means
Never spend your money before you’ve earned it! Make sure you only spend what you can afford to. Creating a budget is the most successful way to manage your money and live within your means.
Identify Ways To Cut Back On Spending
Cutting out non-essential purchases frees up more money, items such as take away or extra clothing. This spending may seem small but soon adds up.
Improve Your Education And Skills
Improving your skills or education can be useful if you end up taking a pay cut or losing your job. It’s always good to have something else up your sleeve.
Grow Your Emergency Savings
During a recession, it’s even more important to create a financial cushion to remain safe if disaster strikes.
It’s Not All Doom And Gloom
A recession is not just a time for cuts, it can also be the best opportunity for growth. Some of the worlds most successful businesses were started during a recession. You might be surprised at some of the following:
Disney was formed in 1929 during the worst financial crisis in the history of the world known as the ‘Great Depression‘.
Walt and Roy Disney created cartoons to bring happiness to people suffering during the economic crisis. One of their first cartoons, Snow White and the Seven Dwarfs was a huge success, making around £1.25m which is equivalent to £81.25 million in today’s money.
An oil crisis in the mid-1970s caused a 16-month long recession. It was during this time that friends Bill Gates and Paul Allen set up Microsoft. Within ten years of starting up Microsoft was a multibillion-dollar company. Microsoft continued to grow, introducing the world to Windows, Office, Xbox, Outlook and many other household names.
Last year, Microsoft exceeded the £100bn valuation and remains as one of the world’s leading businesses.
You can learn more about the amazing businesses started during a recession below.
Are You Ready To Make A Success From This Recession
Whilst these are unprecedented times, history shows that there is no better time to start or grow a business than during a recession.
If you’re itching to start the next Microsoft you can check out our blog on the best business ideas to pursue in 2020.Published