UK faces double dip recession, what does this mean for you?

The British economy is on a knife-edge having narrowly avoided the ignominy of slipping into a double dip recession, according to one industry expert.

The Confederation of British Industries (CBI) recently published research on the economic growth outlook for 2012 and suggested that the UK is NOT heading towards another recession.

Despite this, two other surveys imply that this is not the case. International accountancy and audit firm, BDO, suggests that UK company turnover is likely to continue falling over the next 12 months, meaning the economy will not recover and that recession is looming.

BDO are not alone in holding this view, the Chartered Institute of Personnel and Development (CIPD) found that employers are likely to reduce their workforce, pushing more households into unemployment.

Mass unemployment is continuing to rise, with few signs of stopping. Whilst the rate of unemployment has fallen slightly, figures from the Office for National Statistics (ONS) show that 48,000 people became unemployed in the three months up to December.

The total jobless rate now stands at 2.67 million. Speaking to the BBC, Vicky Redwood, economist at Capital Economics, commented on the figures; “We continue to expect unemployment to rise much further in response to the weakness in the wider economy.

“At least with inflation falling, the squeeze on real pay is easing. But it won’t be for a few months yet until real pay actually starts to rise again.”

The CIPD warns that unemployment levels could hit a staggering 2.85 million unless the economy improves in the near future.

Whilst leading industry experts claim that itís all doom and gloom, the CBI claims that the economic conditions are not so bad that the UK will fall into another recession.

John Cridland, CBI Director General, commented on CBI predictions for the next 12 months; ìEconomic conditions will continue to be tough, especially in the first half of the year, and the UK recovery will depend on the successful resolution of the Eurozone crisis.î

ìBut some activity has picked-up since before Christmas and the mood among many businesses has improved, with the exception of companies serving the UK consumer where business remains flat.î

If the UK falls into recession again, what would happen to you?

Your mortgages

There has recently been a rush of first time buyers hitting the property market before the end of the stamp duty holiday in March. This short burst of activity could inject fluidity in the housing market for the rest of the year. At the same time, however, with another recession potentially looming, banks might be quick to clamp down on mortgage lending to avoid a repeat housing crash, seen in 2008.

Despite this flurry to beat the stamp duty deadline, house purchases have actually fallen to a 27-year low. According to research from the Council of Mortgage Lenders, a property market freeze saw homebuyers hit the lowest level for 27 years.

Just as banks and lenders were beginning to offer low mortgage rates to entice buyers, and property prices continued to fall, buyers have been spooked off by the simple fact that saving for a deposit is near impossible under the economic climate.

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Your incomes

If a recession was to strike again, wages could remain frozen.

This is dependent on a number of factors, including inflation. Inflation has fallen to a 14 month low for January, marking a good start to the year for personal finances.

Inflation fell by a dramatic 4.2% in December to 3.6% in January, putting more spending power back into the pockets of consumers, meaning that wages carry more ërealí value. The Bank of England has increased its inflation decline prediction as the economy wobbles. The bank now believes inflation will fall to 1.8% by 2014, rather than the original estimate of 1.3%.

Yet, despite hopes for lower inflation, the cost of living is soaring as the price of transport, accommodation and general everyday essentials increases.

ìThe pressure on household incomes will also ease slightly in the second half of this year as inflation falls, resulting in a slight increase in consumer spending. But weak wage growth and high levels of unemployment will continue to be a brake on household spending,î said John Cridland, CBI Director General.

According to further ONS figures, the average pay has failed to keep up with the rate of inflation. In the private sector, wages have risen by just 2% while earnings in the public sector have increased by just 1.7%. However, this is not even close to the rate of inflation, at 3.6%.

Female full time workers in the North- West of England have seen their pay drop more than anyone, by a staggering 7.4% annually. If the UK is heading towards a recession, then the figures could get worse.

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