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How will the recession affect businesses and employment across the UK?

• May 22, 2024

There have been many factors contributing to the UK’s fall into recession such as the pandemic crisis that took place in the year 2020 resulting in widespread economic disruption and lockdowns, high inflation driven by price increases and services and many more. However, business owners as well as employees across the UK don’t have a deep understanding of how the recession will affect their business and what this will do to employment rates.

What is a recession?

A recession is a significant, extensive and protracted decline in economic activity. Different sectors may look at different factors such as sales output, productivity, and unemployment levels however, the most common measure is GDP. This is usually defined as two consecutive quarters of negative economic growth.

There are many factors to indicate a recession taking place such as a
    •    Manufacturing slowdown 
    •    An increase in redundancies 
    •    Decline in spending 

What impact will this have on businesses?

The majority of businesses across the UK have been negatively affected by the recession, when consumer demand for products and services decreases, businesses often reduce their operations, leading to a lower need for labour and materials, which subsequently decreases business-to-business spending. As a result of this, businesses are affected in different ways such as:

Employee layoffs and redundancy

Unfortunately, since March 2024, there have been an outstanding 1.49 million unemployed people in the United Kingdom three months to March 2024, with the figure being the highest number since July 2015 when there were roughly 1.84 million unemployed. The rise in employment can be accredited to the pandemic that occurred in the year 2020.

Cash flow reductions

Oftentimes small businesses don’t have big cash reserves, so when money comes in it gets put towards expenses and bills. However, in a recession, consumers are more likely to spend less may extend payments and delay purchases which affects a business’s cash flow.

How will this affect unemployment rates?

As economic activity declines, businesses experience reduced demand for their products and services, prompting them to cut costs by slowing down operations, reducing their workforce, or freezing hiring. Consequently, redundancies increase, and fewer job opportunities are available, resulting in a rise in unemployment. This can create a cycle of reduced consumer spending and further economic contraction, exacerbating unemployment rates even more.

Overall, the unemployment rate is a key recession indicator and although UK authorities aren’t able to give UK citizens a period of how long this may last factors suggest that it could last between two - several months. Although this recession is negatively affecting everyone, we suggest all business owners concentrate on diversifying revenue streams, focusing on marketing and maintaining a strong cash reserve.

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