The UK has officially entered a recession, with new Office for National Statistics (ONS) data showing the biggest drop in Gross Domestic Product (GDP) since records began.

But what will this actually mean for you?

For many, the word ‘recession’ will bring back memories of 2008’s major economic downturn, when unemployment skyrocketed and productivity stalled. The ONS says that we are now in the largest recession on record as a result of the coronavirus pandemic, so it’s natural that you might be concerned.

Here, Which? looks at what we know about this recession so far and the difference it could make to your cash.

What is a recession?

The definition of a recession is two quarters (ie six months) of GDP contraction in a row. GDP – or Gross Domestic Product – is used as a measurement of a country’s economic success, based on factors including how much people, businesses and governments are spending, and the value of a country’s exports.

The latest figures from the ONS show that GDP fell by 2.2%  from January to March 2020 and again by 20.4% from April to June. This is a stark fall in the context of the past two and a half decades, as you can see in this ONS graph, which makes for bleak viewing. The historic Great Recession of 2008 never saw GDP fall at anywhere near the rate it did last quarter.

Jonathan Athow, ONS deputy national statistician for economic statistics, said: ‘The recession brought on by the coronavirus pandemic has led to the biggest fall in quarterly GDP on record.’ There are, however, already signs of recovery. Mr Athow continued: ‘The economy began to bounce back in June with shops reopening, factories beginning to ramp up production and housebuilding continuing to recover.

Despite this, GDP in June still remains a sixth below its level in February, before the virus struck.’ Find out more: lockdown lifting latest What might the recession mean for your money? Job losses Sadly, job losses could be on the cards for many. From April to June, employment in the UK fell by the largest amount in over a decade, according to the ONS.

Employment decreased by 220,000 in the second quarter of the year. This was the largest quarterly decrease since May to July 2009, in the depths of the last financial crash. There are fears that the end of the furlough scheme in October, could be a cliff edge and lead many businesses to lay off even more staff, or to collapse altogether.

The Bank of England predicts unemployment will double by the end of 2020. On the morning the recession was declared, Chancellor Rishi Sunak said ‘hard times’ had arrived and that more jobs would be lost. We’ve put together a comprehensive overview of everything you need to know if you’re at risk of redundancy to help you prepare if you think you might be affected by job cuts.

Another credit crunch One of the biggest ongoing issues of the 2008 financial crash was credit drying up for borrowers. The latest Bank of England Credit Conditions survey of lenders reported that the availability of unsecured credit to households decreased in the three months to the end of May, and was expected to decrease further in the three months to the end of August.

On the ground, we’ve also seen fewer 0% interest credit card deals, 90% and 95% mortgage deals being withdrawn as well as lenders tightening up lending criteria to certain ‘riskier’ groups such as the self-employed and first-time buyers.

Negative interest rates

To counteract the credit crunch, we could see another cut to the Bank of England base rate, currently at a historic low of 0.1%. The Bank is considering setting a negative interest rate, a UK first which could have a huge knock-on effect on savings.

Hard Times are here – Rishi Sunak – Watch video

The Bank of England base rate determines how much banks are charged for borrowing money. The banks use this money to grant customer loans and then make a profit by charging interest on the repayments. A high Bank of England base rate means banks are more likely to offer high savings rates, as using savers’ deposits to fund the bank’s loans is cheaper than borrowing from the central bank. If the base rate is low, being able to borrow cheaply from the Bank of England can be far more attractive than having to pay interest to savers – which is why banks may then reduce their rates or pull particularly popular savings accounts.

Read full article: What the recession means for you