Personal finances under pressure as UK enters deepest quarterly recession

Country’s economic output falls 22% in the first half, though June’s figures show signs of economic recovery.

Britain has plunged into the deepest recession since records began as the economic impact of coronavirus bites businesses, amid warnings household finances are next.

UK GDP, the main measure of economic growth, tumbled 20% in the second quarter of the year.

This is due to the stasis many companies went into during lockdown to curb the spread of coronavirus, and a related drop in consumer spending.

Economic activity bounced back 8.7% in June as restrictions on movement were lifted. However, Britain’s economy still shrank by 22% in the first half of the year, more than any other European country.

The services sector fell by 19.9%, manufacturing 20.2% and construction 35%.

The massive contraction in business activity is already being felt in the real economy. The Office for National Statistics revealed yesterday 750,000 jobs have been lost since the start of the pandemic, mainly as companies freeze hiring.

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Many more are expected to be out of work when Chancellor Rishi Sunak’s job retention scheme ends in October, raising fears household budgets, already under pressure, will become further strained.

Sunak says:

“Today’s figures show that hard times are here. But although tough decisions lie ahead for all of us, no-one will be left without hope or opportunity.”

James Smith, research director at the Resolution Foundation, an economic think tank, said the longer-term impact of the crisis on living standards will depend on the scale of the rise in unemployment and how long it lasts. 

He added:

“The government’s priority should be providing support to those parts of the economy hardest hit by the crisis, supporting jobs while also helping those unlucky enough become unemployed.”

Research from comparison site Know Your Money found over a quarter (28%) of people are anxious about their financial situation as the country comes out of lockdown.

John Ellmore, director of Know Your Money, says:

“With interest rates remaining at an historic low of 0.1%, consumers will likely be concerned about the long-term impact on their hard-saved cash.”

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Pension savers and retirees could also find their retirement plans thrown into disarray. 

Fifty FTSE 100 companies have cut, cancelled or suspended dividend payments so far this year, payouts many rely on to boost their nest eggs and pension income.

Andrew Megson, executive chairman of My Pension Expert, says the added pressure of a recession while interest rates are already at rock bottom will shake many pension savers.

He says: “Those reliant on a defined benefit scheme may find that their company can no longer afford to maintain them, as pension liabilities skyrocket.

“Likewise such low interest rates are not good news for people considering purchasing an annuity with their pension pot, as those without a guaranteed annuity rate will see their value fall.”

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