Official government figures have today confirmed the UK is now in recession for the first time since 1991.
The generally-used technical definition of a recession is two quarters running of negative economic growth. Gross domestic product fell by 1.5% in the last three months of 2008 after a 0.6% drop in the previous quarter. It represents the biggest quarter-on-quarter decline since 1980, and a 1.8% fall on the same quarter a year ago.
The figures are from the Office for National Statistics (ONS), showing that manufacturing contracted the most by 4.6% despite hopes that the weak pound would help exporters. This worse than expected shrinkage sent sterling to a 24-year low against the dollar, with one pound buying $1.355. (guess we’re not going on holiday to the US then for a while!)
How long will this last?
The last two recessions lasted for just over a year and many forecasters believe a recession could stretch into 2010 and be as severe as that of the early 1990s.
What does this mean for most of us?
Well I wouldn’t expect a pay rise any time soon, and I would be fearful of job losses as most companys will be cutting their workforces.
Crime will be on the increase too as many people will resort to theft.
Apparently drug additions go up in a recession.
The range of choices when you shop will see a decline too.
On the positive though things should get cheaper in terms of food and fuel as the government does what it can to help struggling familys and boost the economy.
The Government now has a Â£200m package of measures designed to prevent some of the most vulnerable families losing their homes due to repossession. The government scheme subject to a range of eligibility criteria is aimed at households who are eligible for homelessness assistance. In the scheme housing association will be able to buy part or all of the struggling homeowners home. The owners will then be able to stay on as a tenant at a reduced rent.
Does this sound familiar to you? I think the government has decided to offer its own Sell and Rent Back scheme to struggling homeowners. Using tax payers money of course!
To what extent will the government be able to help? well lets look at the amount involved Â£200m. With the 200m they reckon they will be able to help 6,000 homes avoid repossessions across England. his may seem like a large number, but compared to the ammount of yearly repossessions, this figure is but a drop in the ocean. In 2007, 27,000 homes were repossessed by their lenders as the homeoweners could not afford to pay their mortgages. This figure rose to 45,000 in 2008. This year the number of repossession will be set to rise 75,000 (CML estimate) as the recession takes its toll. 6,000 homes saved will only therefore be 8% of homeowners that will be able to benefit from the new scheme. What about all the other 92% of homeowners who face repossession?
Will this be opportunity for the investor with private sale and rent back schemes? I think so, but any investor getting involved in rental properties will have to be cash rich as most buy to let mortgages now require at least 25% deposit.