When Was The Recession UK?

By The Money Farm Team

The global economic collapse was felt around the world, with several countries, including all of the G7 economies, experiencing recession in 2008. All of the G7 countries’ GDP has yet to recover to pre-recession levels. The United Kingdom has been in recession for longer than the other G7 economies and was the last to emerge.

When did the United Kingdom go into recession, in 2008?

When the Office for National Statistics declared that the GDP had contracted in the second two quarters of 2008, the UK formally entered recession on January 23. The announcement came amid a wave of retail bankruptcies, with Woolworths and Waterford Wedgwood among the most well-known victims.

What caused the UK’s recession in 2008?

The credit crunch (2007-08), in which the global banking system ran out of funds, caused a drop in confidence and bank lending, was the fundamental cause of the Great Recession. The causes of the credit crunch were complex, but here’s a quick rundown.

Sub-prime mortgage loans increased dramatically in the United States between 2000 and 2007. These mortgages were extremely hazardous, but there was a lot of ‘irrational exuberance’ and the expectation that housing values would continue to rise.
These ‘risky mortgage bundles’ were sold to banks all around the world by US mortgage businesses. (Despite the fact that they were extremely dangerous, credit rating agencies gave them AAA ratings.)
Interest rates in the United States began to rise about 2005, and homeowners in the United States began to fail on these riskier mortgages.
Banks in the United States lost money, but banks all around the world later discovered that the’safe’ mortgage packages they purchased were actually worthless. Many banks around the world saw their liquidity and asset values plummet.
Financial instability has caused a drop in consumer and business confidence.
Because of overvalued exchange rates and high bond yields in Europe, the single currency has generated extra challenges.
Great restraint. From 2000 to 2007, the economy grew rapidly, inflation was low, and unemployment was low. Central banks seemed to be effective in achieving their goals of low inflation and economic stability. However, beneath the surface of macroeconomic stability, credit and financial markets were becoming increasingly unstable.
There is a housing bubble. House prices in many countries have risen rapidly. House prices increased faster than inflation and salaries. A rise in bank lending and a strong level of confidence aided the housing bubble. Several countries, including Ireland and Spain, saw a surge in home construction.
Loans that aren’t good. Banks became increasingly aggressive and willing to take risks in lending in the run-up to the credit crunch. Banks and mortgage businesses, particularly in the United States, relaxed their lending restrictions. Many homeowners received big mortgages with few checks on their ability to pay them back. People, on the other hand, were stuck with mortgages they couldn’t afford during the economic collapse.
Repackaged and resold bad loans These “bad” mortgage loans were sold to financial institutions all around the world. Many UK and European banks, for example, bought these mortgage bundles (CDOs) from the US and were so exposed to any possible losses in the US housing market.
The real estate bubble burst. The housing market bubble in the United States crashed in 2006. House prices began to decline, and mortgage defaults increased. Banks began to realize that the US mortgage defaults had cost them a large amount of money.
Banks are cash-strapped. The size of bank losses began to grow, making it more difficult for banks to borrow money on the money markets. As a result, banks cut back on lending and mortgages. Because banks were losing money, obtaining credit and liquidity became difficult. Some banks lost so much money that they ran out of cash. The government had to bail out large banks in various nations, including the United Kingdom, Ireland, and the United States. However, the realization that banks were cash-strapped undermined consumer and investor trust. Lower spending and investment were the result of the drop in confidence.
Oil prices have risen. Oil prices also reached a high point in 2008. This made things more problematic because it resulted in cost-push inflation. Central banks were more hesitant to decrease interest rates as a result of this cost-push inflation. Increased oil costs also reduced discretionary income, resulting in lower spending. Oil prices usually fall during a recession. However, rising oil prices were seen as a result of rising demand in China and India, even as Europe and the United States slid into recession. Another factor lowering demand was high energy and commodity prices.

The impact of the credit crunch and recession

In 2008, the real GDP of all major economies fell precipitously. Normal bank lending was substantially hampered by the banking crisis. As a result, investment and consumer expenditure fell, resulting in a substantial reduction in real GDP.
Another aspect that contributed to the recession was the drop in property values. Higher consumer spending was fueled by growing property prices (and wealth) during the boom years. When house values fell, many homeowners found themselves in a negative equity situation. As a result, they reduced their spending and were no longer able to rely on re-mortgaging to obtain equity withdrawal.
Because of the worldwide scope of the crisis, there was a decline in global trade. As a result of the global crisis, countries suffered a reduction in exports.
Debt owed by the government. The recession caused a significant increase in government debt. Many European governments sought to cut spending as a result of this, ushering in a period of ‘austerity.’
The European Union is experiencing a crisis. Bond rates in the Eurozone rose in 2010-12, partially due to the recession and partly due to the lack of a Central Bank prepared to assist.

Response to the great recession

Banks are being rescued. To begin with, governments felt compelled to engage in the banking sector in order to prevent banks and financial organizations from failing. However, bailing out individuals who were blamed for the crisis was met with some skepticism. In 2008, the United States opted to let Lehman Brothers fail. This resulted in a significant loss of confidence. Following the fear that ensued, governments realized they could not allow this to happen again. In the United Kingdom, the government intervened to save big banks like Northern Rock and Lloyds TSB.
Interest rate reductions. Central banks reduced interest rates to historic lows in the second part of 2008 and early 2009. The Bank of England dropped interest rates from 5% to 0.5 percent in the United Kingdom. A significant reduction in interest rates would usually make borrowing less expensive and boost consumption and investment. (For example, when the UK lowered interest rates in 1992, the economy soon recovered.) Cuts in interest rates, on the other hand, were less successful during this time.
Fiscal policy that is expansionary. Because government tax income vanished during the harsh recession, budget deficits skyrocketed. This was especially obvious in countries that rely on stamp duty and finance-related taxes. However, budgetary expansion was moderate in the United Kingdom and the United States. VAT was temporarily reduced in the United Kingdom. There was also a moderate fiscal boost in the United States.
It’s worth mentioning that, in contrast to the Great Depression of the 1930s, the Great Recession avoided two things.
A large number of bank failures were avoided (In the 1930s, in the US over 500 commercial banks went bankrupt)
There was no significant trade war. In the 1930s, governments fought to defend domestic industries by waging a tariff war.

Was there a recession in the United Kingdom in 2012?

Official estimates demonstrate that the UK economy did not endure a double-dip recession at the start of 2012. The Office for National Statistics (ONS) updated its historical statistics, reporting that growth was flat in the first quarter of 2012, down from a previous estimate of a 0.1 percent contraction.

How long did it take the United Kingdom to recover from the 2008 financial crisis?

It took five years for the economy to recover. The UK economy shrank by more than 6% between the first quarter of 2008 and the second quarter of 2009, and it took five years to recover to its pre-recession size. According to the most recent figures, the UK economy is now 11% larger than it was before the recession.

How long did the economy take to recover after the financial crisis of 2008?

The Dow Jones Industrial Average (DJIA), which had lost more than half of its value since its peak in August 2007, began to recover in March 2009 and broke its 2007 high four years later in March 2013. The situation was less pleasant for employees and households. Unemployment peaked at 10% in October 2009, then fell back to 5% in 2015, over eight years after the crisis began. It wasn’t until 2016 that real median household income surpassed pre-recession levels.

Is a recession every seven years?

“Recessions follow expansions as nights follow days,” said Ruchir Sharma, Morgan Stanley Investment Management’s head of emerging markets and global macro. “Over the previous 50 years, we’ve had a worldwide recession once every seven to eight years.”

What was the market’s drop in 2008?

On September 29, 2008, the stock market crash occurred. In intraday trading, the Dow Jones Industrial Average dropped 777.68 points. It was the greatest point decrease in history until the stock market crash of March 2020, which coincided with the onset of the COVID-19 pandemic.

Was there a recession in the UK in the 1990s?

The recession significantly affected job markets across the country, with unemployment climbing from 7.2 percent in October 1989 to 12.1 percent in November 1992; it would take ten years for unemployment to return to its previous level of 7.2 percent (it was reached in October 1999). For example, by December 1992, 16.7% of the active population in Montreal (Quebec) was unemployed, but the number of welfare families climbed from 88,000 to 102,000 between April 1990 and December 1992.

The early 1990s recession was notable for being significantly more negative for employment in Ontario than the early 1980s recession; Ontario’s percentage of total age 15-64 population employed began to decline early in 1989 and only began to grow again early in 1994, after a five-year decline of 8.2 percentage points.

In the early 1980s, on the other hand, Ontario’s employment percentage decline was less than Canada’s overall, with just a 4.4 percentage point contraction.