The UK has slipped into a recession at the end of 2023, according to data from the Office for National Statistics (ONS). The ONS reported that the UK’s gross domestic product (GDP) fell 0.3% in the final three months of 2023, with a deterioration in all main sectors of the economy and a crash in retail sales. This number is higher than the predicted 0.1% drop in GDP. In 2023, the UK’s economy only grew by 0.1% overall.
This development goes against Prime Minister Rishi Sunak’s promises to boost the economy, one of the five priorities he outlined for the government when he first started his post.
But what is a recession, and how does it impact students?
A recession happens when there is a substantial, extensive, and prolonged downturn in the economy, usually happening over two quarters of the year. It is measured by the nation’s gross domestic product (GDP), which is the total value of all goods and services that a nation produces. When an economy declines, there is a drop in economic output, employment, and consumer spending, and as a result, a decline in the nation’s GDP.
A recession can be caused by several factors, from the economic, financial, psychological, or a mixture of all three. This time, Marcus Brookes, chief investment officer of Quilter Investors, cites ‘persistently high inflation, structural weaknesses in the labour market and low productivity growth, but also adverse weather conditions’ as the main causes of the current recession.
Though recessions may last for a few months, it may take years for the state of the economy to return to its former ‘peak’. The UK is still recovering from the last six-month recession during the 2020 COVID-19 pandemic, which marked a record 20.4% drop in the economy.
To sum it up, Richard Dickens, Professor of Economics at the University of Sussex Business School, says that recessions “just kind of means that the size of the pie for everyone is getting smaller.”
“[S]o that’s bad news, because it means that we have less. We’re used to living standards, improving or economic growth, and when that slows down that’s bad news for living standards and also the labour market.”
Indeed, for students, one of the biggest impacts of a recession will be the rise in unemployment, with Professor Dickens citing recessions and employment going “hand in hand.”
During this time, companies will most likely be making budget cuts and reducing staff numbers to curb overall spending. For recent graduates and school leavers, this means that there will be less job opportunities and lower starting salaries. This is also true for students looking to find part-time work, presenting a difficult situation especially when students are ‘more likely to work nowadays than they did ten years ago to “supplement their education.” For those already employed, it may be harder to get promoted or get wages that can keep up with rising prices in the current cost of living crisis. This trend is likely to continue even as the economy recovers.
Research from Stanford University’s Institute for Economic Policy Research (SIEPR) has also discovered that graduates who start working during a recession make less money, though they work more compared to those who start work during periods of economic growth. For “recession graduates”, SIEPR finds that this “bad luck” can be detrimental, leading to “permanent differences in life circumstances” and even a higher death rate when reaching middle age, likely due to unhealthy lifestyle behaviors.
While they do paint a bleak picture, recessions are a necessary part of the economic cycle. The economy will inevitably rise and fall, and so recessions can be quite common, though they aren’t as frequent or prolonged as before, according to Investopedia.
“Perhaps sometimes recessions do this kind of thing as well, that where they speed up a company’s decisions, they may clear out sectors of the economy that are perhaps not performing well, and that kind of can perhaps open the gateway for new sectors to emerge, I suppose. But it’s often a painful process for everyone involved,” Professor Dickens says.
He claims that this recession “feels a little bit different,” in particular with how there are labour shortages in particular sectors, which have led to more firms hiring. This is compounded with the “quite big increases: in the national living wage since 2016, where “workers at the bottom have seen the biggest increases” – a stark contrast to previous decades.
“So it’s not all doom and gloom,” Professor Dickens ends.
As always, what goes down needs to come back up again. Reuters claims that this recession is likely to be ‘short-lived and shallow by historical standards’, with politicians and experts are already claiming that the economy will pick up by the end of 2024. While there is not much the individual student and recent graduate can do to mitigate the effects of a recession, such developments may give hope for better conditions in the future.
