Bank of England warns of coming recession - what does this mean for your money?

7 May 2020

Central bank predicts a “very sharp fall in UK GDP in 2020


The UK economy could be heading for the worst recession on record due to the coronavirus pandemic, the Bank of England (BoE) warns.

It forecasts that the UK economy could shrink by 14% this year alone if lockdown measures are phased out from June.

A statement from the BoE says: “The spread of Covid-19 and the measures to contain it are having a significant impact on the United Kingdom and many countries around the world. 

“The unprecedented situation means that the outlook for the UK and global economies is unusually uncertain. It will depend critically on the evolution of the pandemic, and how governments, households and businesses respond to it.”

What does this mean for savers and borrowers?

Savers already face a tough time as banks have been quick to pass on the BoE’s March cut to base rate by slashing interest on savings accounts.  

Kevin Brown, savings specialist at Scottish Friendly, says: “Markets have largely responded to the crisis already and much of this fresh economic data is already priced in. It is impossible to predict the bottom, but one thing’s for sure, savers won’t find succour in a savings account paying 0.5% interest. 

“Many high street banks, building societies and challenger banks are cutting rates but there can still be ways to generate above inflation returns by exploring alternatives such as regular savings accounts, longer fixed-rate Isas and stocks and shares.”

Low interest rates tend to benefit borrowers as they make the cost of taking out a loan cheaper.

But experts warn that there has been little relief for borrowers so far.

Laura Suter, personal finance analyst at investment platform AJ Bell, says: “Banks and building societies have been quick to slash rates, but so far there has been little respite for borrowers.

"With more people taking on more debt in order to get through the current crisis, many will be hoping that sustained low interest rates will provide some breathing space for those with debt.”

What about investors?

Investors can help recession-proof their portfolio by making sure they have at least three months of salary in cash, according to Myron Jobson, personal finance campaigner at Interactive Investor (ii), which owns Moneywise.

Jobson says: “Historically, it’s often said that three months salary is a fair rule of thumb for an emergency cash safety net. That will be a tough challenge for many of us at the best of times. But given what we been through, many people will want to double that, even amid paltry savings rates.”

Having a global, balanced portfolio can also help protect your investments from the ravages of a recession.

Picking defensive stocks might also help your portfolio weather a downturn, according to Richard Hunter, head of markets at ii.

He says this is because all defensive stocks produce something we always need as consumers despite the coronavirus outbreak, such as utilities, pharmaceuticals or supermarket products.


Not another recession

I think there have been two recessions in my life. I lost my job as I was made redundant in the first one. It was impossible to find another job. Then years later in 2005 I bought a house and it sold for around the same price in 2010. There had been a recession in 2008 which had harmed house prices. I think another recession is worrying.

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