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The UK has fallen into its deepest recession on record, following the lockdown earlier this year – intended to slow the spread of coronavirus (COVID-19). Official figures show the UK economy shrank 20.4 percent between April and June compared to the first three months of 2020.
It came following a decline in GDP between January and March – resulting in the recession, which is defined as two consecutive quarters of economic decline.
However, figures show the UK economy grew by 8.7 percent in June, compared to May, analysts have pointed out.
Azad Zangana, Economist at Schroders, commented: “Headlines will focus on the record fall in GDP for the second quarter, as the economy contracted by 20.4 percent.
“It follows a smaller contraction in the first quarter and therefore confirms the recession all had expected as the economy struggles to cope with the coronavirus pandemic.
“However, within the quarterly figures are clear signs of a rebound.
“The latest official figures show the economy grew by a record 8.7 percent in June compared to May, meaning that the level of GDP is now 17.1 percent below its previous peak, compared to 25.5 percent back in April.
“Therefore, the recession is likely to have already ended and a strong rebound – potentially even double digit growth – is expected for the third quarter.”
Nevertheless, with millions of people having been furloughed while others sadly encountered job losses and pay cuts, now is no doubt a time when many will want to keep an eye on their finances.
That’s why John Ellmore, Director of KnowYourMoney.co.uk has shared some tips on how to recession-proof your finances.
Speaking exclusively to Express.co.uk, he highlighted a number of tips – including the importance of strengthening and maintaining a good credit score.
1. Set up a financial buffer
“The financial pressures of a recession, combined with historically low interest rates, creates challenges for consumers when they are managing their finances,” he said.
“However, there are ways that people can prepare for this climate.
“Firstly, it is wise for consumers to build up an emergency fund.
“This will provide them with a financial buffer, should they fall on tough times. As a guide, an emergency fund should hold a value of between three- and six-months’ income – although any amount is better than nothing.
“Instant access savings accounts could be a suitable option for such funds, as they allow consumers to immediately withdraw money without facing additional charges.
“The drawback, however, is that these accounts tend to have very uncompetitive interest rates. That said, there are some banks that can offer interest of over one percent, so consumers should research and investigate the options.”
2. Getting on top of credit
“During tough economic climates, the credit market typically tightens,” explained Mr Ellmore.
“This means that it can be more difficult for consumers with average-to-low credit scores to apply for credit cards, mortgages or loans.
“So, it is important for consumers to take steps to strengthen and maintain a good credit score.
“The simplest way to achieve this is to ensure bills are paid on time. To that end, setting up direct debts is a useful step to avoid late payments.
“Also, making sure you are registered to vote – a point often overlooked by many consumers – can help.
“These simple actions will give consumers a better chance of success if they need to apply for a mortgage or loan during the recession.”
3. Getting frugal
“Within recessions, consumers who have fears over their income or finances ought to be strict with themselves and get into the habit of making sensible financial choices.
“A good starting point is to review bank statements to understand incomings and outgoings – and many will be surprised by just how much they are spending.
“Throughout the lockdown period, many consumers attempted to overcome boredom with online shopping, for example.
“Indeed, 23 percent of UK adults said they were guilty of spending too much on online shopping during the lockdown period, according to research from KnowYourMoney.co.uk.
“So, a thorough audit of one’s finances will enable consumers to identify and eliminate needless or excessive spending.
“Additionally, a financial audit will allow consumers to review their larger expenses and see where savings could be made. After all, UK households spend an average of £34.40 a week – or £1,788.80 a year – on utilities (gas, electricity, water etc.), according to the Office for National Statistics.
“It underlines the importance of shopping round for the best deals – comparison websites are a great place to start with this, as they do the legwork for consumers.
“Making the most of savings tools provided by some banks can also make a big difference to one’s financial health. For example, some banks give consumers the option to ’round-up’ on every purchases; this means that every time a consumer makes a purchase – such as a cup of coffee costing £2.70 – the consumer is able to round up the price to the nearest pound and put the difference into a savings account. Over time, these little contributions really add up.”
4. Debt Management
“For many consumers, concerns about debt repayment will be at the forefront of their minds – particularly when it comes to larger household expenditures, such as mortgages or loans.
“Indeed, research from KnowYourMoney.co.uk revealed that 28 percent of UK adults are feeling anxious about their financial situation at present.
“To start, consumers must add up all their repayment commitments, and determine exactly how much they are costing them each month. This will help households to plan budgets and, more importantly, anticipate any potential cash flow issues that may arise.
“If repayments become an issue, there are options available to ease the burden.
“Consumers should speak to their lenders about a possible payment holiday, or switch to making interest-only repayments for a short period of time.
“However, these options could mean that consumers end up paying more in the long-term, so it is vital to check the small print with their lender before making any changes to repayment methods.
“If the burden of repayments becomes too much, consumers must never be afraid to ask for help.
“Charity organisations such as StepChange and Citizen’s Advice are on hand to listen to consumers’ worries and help them take steps to regain control of their financial situation.”
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