Just who wants a recession?

Liam Tarry's picture

According to recent reports, the UK is sailing dangerously close to a recession – defined simply as two quarters of negative growth. Unemployment is set to soar, the price of oil and food show no signs of slowing down, and house prices are expected to keep falling (as much as 35% according to Capital Economics).

At 24, I can barely remember the dark days of the early 1990s, too young to understand what was happening to the economy - but I do remember my parents worrying about the mortgage, finding it hard to get by, and never thought I’d be in the same boat now.

But rather than bemoaning the state of my own finances, crossing my fingers and hoping the economy starts to find it’s feet again, I thought it would be worth doing a little research to see if I could find out who out there is actually hoping for the dreaded ‘R’ word.

Discount stores and pawnbrokers

We all need to eat every day. We also need essentials such as toiletries, cleaning products and clothes. Expect discount food stores such as Aldi and Lidl to post bigger profits, as well as other stores such as QD, Primark and H&M – so although we all have less money to spend, these stores will be where people go to spend it. On that same theme pawnbrokers and stores like Cash Converters profit from a downturn as more cash-strapped Brits rush to sell their treasures to get some much needed cash flow.

Canny investors

But just because the stockmarket may fall, that does not mean that there aren’t opportunities to make money. Hedge funds are renowned for prospering in bear markets by shorting stocks – this is effectively borrowing shares in a company from an investor, selling them at market value and hoping they fall. When they do they repay the investor back and keep the profit for themselves.

Volatility in the stockmarket also causes investors to rush to the safety of other asset classes, such as gold, oil, cash and bonds. I won’t claim to be a stockmarket guru, but certain stocks will prosper too. As previously mentioned, discount food and clothing retailers should be a good bet, but also others work better in a downturn. Apparently men are more likely to have a flutter in tougher times, so gambling companies thrive in a recession, and as people look to ‘drown their sorrows’ the sale of alcohol goes up. Women are also more likely to buy cosmetics as small treats rather than expensive shoes or clothes.

Debt management companies

Debt management is big business. As more people start considering bankruptcy, many will turn to a debt management company to negotiate with their creditors on their behalf, helping them to pay back their debt in regular instalments. However, few people realise that the debt management sector is unregulated by the FSA, the fees charged can be quite high and they only deal with ‘non-priority’ debts.

Sale-and-rent back is another unregulated business that looks like it will profit from a downturn. Unlike the equity release sector that is regulated, with sale-and-rent back homeowners sell their home at a discounted price and rent it back over an agreed period. They typically target overstretched homeowners facing repossession. Although they may be too tempted to turn the offer down to get their mortgage company off their back, they could find themselves turfed out of their homes.

As you can see whilst the majority of us will be in the ‘loser’ category, any recession in the UK will bring about some winners. So next time you see a copy of the Daily Mail with yet another ominous headline saying we’re all doomed, try telling that to the chief executives and managers of the aforementioned companies….

Recession? What recession?

Liam Tarry is the staff writer at Moneywise

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