How To Prepare For a UK Recession 2023 (ACT NOW)

How To Prepare For a Recession 2023 (ACT NOW)

The Bank of England has warned that the UK is in a recession and it will last for at least 2 years.

Today, we want to share with you some practical things we can start to do in our lives and in our finances to prepare and get through a recession.

We know that in reality for a lot of people, their incomes are fixed and their costs are going up.

They have got debts as well as other obligations to tackle on a day-to-day basis and a lot of people feel completely out of control.

But first, let's get you up to date with where we are in the UK economy.

And then we're going to give you some tips on how you can best prepare for a recession, as it seems inevitable.

Update On The UK Economy In 4 charts

The backdrop is that the Bank of England is in a tricky place at the moment and in a conundrum.

Inflation has been rising significantly.

The Bank of England is in a position whereby they've delayed a little bit in increasing interest rates and all of a sudden interest rates are starting to rise.

If they do nothing with interest rates, inflation will keep spiking up and if they spike up interest rates too quickly, the UK will face a recession in the economy.

Let's first look at four charts to help us understand the state of the economy:

• Interest rates
• Inflation
• GDP
• Unemployment

Inflation Forecast

The first of these is us looking at inflation, you can see up on that screenshot inflation has affected us all.

We've felt it through the cost of living rising.

i.e. energy prices, food costs, childcare, rent, etc. Every cost you can imagine has been rising.

You can see that the Bank of England had forecast that inflation was set to rise to double digits to around 10% by the end of 2022.

In fact, the official CPI inflation figure as of January 2023 is 10.7%.

This means that RPI inflation, which we should be even more concerned about, sits at around 14%.

Recommended: How To Invest To Beat Inflation

GDP Forecast

The next chart, as you can see is that GDP growth is expected to decline sharply.

In 2023, we're expecting to see a GDP fall instead at -0.25%.

And then in 2024, the growth expectation is 0.25%.

This will be a period of stagflation, where high price from inflation weakens demand, which leads to weak economic outputs.

Unemployment Forecast

So although unemployment has been falling sharply for the last two years, as we've all been through the pandemic, what we're expecting to see is a sharp rise.

Unfortunately, unemployment is predicted to rise to around 5.5% in the next three years.

In practical terms, around 450,000 people are expected to be out of work as a result of that rise in unemployment.

That's a big number.

Interest rates forecast

The final piece, as you can see on the screen is interest rates.

The Monetary Policy Committee (MPC) increased interest rates to 1%, the highest it has been in 13 years.

Then in June 2022, this was increased to 1.25%, which was the 5th increase in 6 months.

However, as of January 2023, the base rate stands at 3.5%.

The markets are predicting that UK base interest rates will rise to 4.5% by Autumn 2023.

This will result in additional money that people now have to start to think about finding as the cost of living rises.

Everything seems to be rising all at the same time.

10 Practical Tips For How to Prepare for a Recession

Let's get practical now. We have talked about the picture as things stand now.

Should we just sit back and do nothing? Or should we get proactive?

Our view is that we should not subscribe to doom and gloom.

Obviously, these are realities of life and a lot is going on at the moment.

But we should focus on being practical and doing certain things to prepare for the recession.

Definitely do not panic, but it's the time to get practical, and we're about to help you guys do that.

1: Use More Cash

The first tip we've got to share today is to use more cash.

We've become more of a cashless society.

Look at the limit on contactless payments, which has risen to £100.

They're making it a lot easier for us to spend and get into debt.

Using more cash means that you are much more likely to figure out how much you are spending.

It will allow you the see if you are living within your means.

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2: Lock-In a Fixed Rate On Your Mortgage.

As we've seen, interest rates have gone up to 3.5%.

Markets have forecasts that it will go up to at least 4.5% before the year-end.

So it makes sense now to assess whether you want to a fixed rate or to remain on the Standard Variable Rate:

3: Upskill And Show Up More At Work

We have mentioned the numbers on where they see unemployment rates heading.

Of course, we do not want you or any of our readers to be negatively impacted or become unemployed.

But we all know that it's inevitable that some unemployment will happen in the future as this recession is anticipated.

So what we'd highly suggest is upskilling or try to do more of your boss's job at work.

By that we mean, try and do more work, that means that you are becoming ever more relevant to your employer.

This way you are seen as that person who's that reliable individual who shows up.

i.e. you're ever-present, but also making the effort to upskill and take on more at work.

Doing that not only earns you more money, which you will need in this time of rising cost of living.

But it also means that you're less likely to lose your job if your employer has to let some people go in event of a recession.

Watch this video for how I got a £35,000 pay rise at work:

4: Build A Bigger Emergency Fund

Now we know that this is quite tricky for a lot of people who are already struggling to get by.

Many people are already only buying essentials and still struggling to save.

But if this is something that you can do, no matter how small, we would recommend building an emergency fund.

Recommended: How to Build An Emergency Fund Fast (10 Ways)

5: Create A Different Stream Of Income.

As someone who has been through a recession, and has also been made redundant as part of a recession…

I know for sure what it feels like to rely on just one source of income without an alternative source.

There was that fear of losing my job knowing that I did have a backup, that's the biggest thing.

So a big priority at this very moment, if you are in that position where you're only earning one source of income, is to make an effort to prioritise an alternative source of income.

This not only gives you diversification and gives you a backup in the event that you lose your job.

But it also gives you that peace of mind.

You feel like you've got something else that you can fall back on if things went completely wrong.

To get started, I'd recommend getting the Grow Your Money Planner

6: Budget If You Are Not Doing So Already

We recommend you have a conversation with your partner if you have one.

The last thing you want to do is to go into a recession, and you're not on the same page as your partner.

I'm suggesting just an informal chat where you both sit down and you review your budgets, your current spending, and how you can change things going forward.

Also, discuss the worst-case scenarios, like if this happened, what should we do?

If interest rates went up again by another 0.5% what would we deal with it? etc.

Recommended: Our Simple ‘Budget For Life' Tool

7: Do Not Sell Your Stock Market Investments

There's a thing called Recency Bias, which essentially speaks to us making decisions now based on recent news.

So panicking and selling your stock market investments, damages all the really good work you've done so far in investing your money wisely.

What you don't want to do in this time of uncertainty and possible recessions is to go and sell your investment.

It's the worst possible way to destroy your wealth.

You're essentially selling low, and potentially having to buy back high later,

So even if you've got losses now, and it's looking like, “oh, man, I'm hurting, I'm losing a lot of money.”

It's not a real loss, yet, until you hit that sell button.

Keep away from your investments.

Don't keep checking and checking, it's not real yet provided you don't sell.

Things do change and will change over time.

8: Buy Units Cheaper, Invest More For Long Term

Although the stock market is volatile, and the stock market is falling, it's a good time to buy cheap, if you can.

And speaking the obvious, the prices are cheap, because there've been significant falls in the stock market at the time of making this post.

In fact, the S&P 500 is in a Bear Market (over a 20% fall in value) since the start of the year.

We'd suggest that you invest in low-cost, globally diversified index funds, and ETFs.

Recommended: Best Vanguard Index Funds and ETFs for Financial Independence

9: Be Aware Of The Negative Equity In Property

We mentioned this one for people who are investing in property, buying properties at a high point in the market.

Prices are super high and have been for some time.

But it's anticipated in the next couple of years that prices will fall.

It seems this time around, it's expected that property prices are expected to fall fairly significantly in the next couple of years driven by where interest rates are going.

So I'm just mentioning this just so you can think about it.

For someone who is purchasing, and you've got very little equity in a property, the last thing you want is to fall into negative equity.

If you're buying a property or you own a property, try your best to pay off more of that property so you have more of the equity in that property.

In the event that negative equity becomes a reality down the line, it won't affect you so much.

10: Pay Off Expensive Debts Where Possible

Review all your debts as rates rise as expensive debts will hurt in this time.

So I'd recommend focusing on those and paying those off.

I would also suggest overpaying your mortgage if it's possible to do so from income coming from your side hustle or an additional part-time job.

Bonus Tip

A final bonus tip is, please don't get bogged down by the news.

If you spend too much time watching the news every minute, checking all the updates, and you have all those alerts, it will only really just wear you down.

Stay away from too much news consumption. Instead, spend more time caring for your wellbeing and the wellbeing of the people around you.

This will be very important in the next few months as we approach what's expected to be a big recession.

Frequently Asked Questions: How To Prepare For a Recession

Below are some FAQs to help you better prepare for a recession:

1: Where should I put money in a recession?

• Dividend-paying blue-chip stocks
• Property that generates income
• Index funds and ETFs
• Cash

2: What should I own in a recession?

• Income-generating assets
• Index Funds and ETFs
• Online Business
• High-Interest Savings Accounts
• Dividend-paying stocks
• Physical property that pays rent
• Cash
• Bonds

3: How do you make money in a recession?

• Rent out a spare room
• Buy cheap stocks 
• Buy property from distressed sellers
• Start a Finance YouTube Channel
• Invest in Dividend Paying Stocks
• Do Rent-to-Rent
• Convert commercial property to residential 
• Publish an ebook
• Offer freelance services
• Start a side hustle

4: Is cash good in a recession?

5: Is it good to buy a house during a recession?

6: What is the safest asset to own?

• Property or Real Estate
• Bonds
• Cash in a high-interest account
• Money market funds
• Globally diversified Index funds and ETFs

7: How do you prosper during a recession?

• Focus on upskilling 
• Budget and track your expenses
• Invest in cheaper stocks
• Stock watching the news every day
• Payoff expensive debts
• Build a bigger emergency fund
• Invest in cheaper distressed property
• Use more cash not credit
• Get a fixed-rate mortgage
• Focus on a simpler lifestyle

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What you're doing practically to start to prepare for the expectation of a recession in the next few months?

Please share this post if you found it useful, and remember, in all things be thankful and Seek Joy.