Last week, the Bank of England raised the base rate to 1.75 percent in a bid to mitigate the devastating impact inflation is having on the economy.
Last week, the Bank of England raised the base rate to 1.75 percent in a bid to mitigate the devastating impact inflation is having on the economy. While this decision should be passed on by high street banks to their savings accounts, the central bank issued a grim warning over the potential recession. Britons are being told to prepare for the UK economy to continue shrinking in the last three months of this year and keep shrinking until the end of 2023.
This means households will have to budget and protect their money anyway they can for the next year.
What is a recession?
A recession is the term used to describe a period of economic decline which lasts for at least two successive quarters.
Under current forecasts, unemployment in the UK is expected to rise from three to six percent as a result.
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With the economic downturn only months away, saving has become more important than ever, according to experts.
Brean Horne, a personal finance expert at NerdWallet, discussed what a recession means for savers and those wanting to safeguard their money.
Speaking exclusively to Express.co.uk, Ms Home said: “Savers face a perfect storm of economic conditions during a recession that may limit their savings power.
“Interest rates are usually lowered during a recession to help tackle the decline in the economy and encourage growth by making it cheaper to borrow.
“While lower interest rates may help borrowers, it’s less advantageous to savers. The rates on savings accounts typically decline as interest rates fall.
“If inflation remains high during a recession, there’s a risk that savings will lose value in real terms too. This means that savers are able to buy less with what they have in the bank.”
The finance expert broke down the options available for people who are looking to boost their finances despite the pending recession.
These include the constant monitoring of household finances and building an emergency fund to weather the storm.
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She added: “Budgeting helps to paint a picture of where you stand financially by tracking your income and spending.
“There are many free budgeting apps and online tools available that can help make this process easier.
“Many lenders and utility companies offer support and schemes to help customers that may not be able to afford repayments.
“You may also qualify for financial support from the government, such as Universal Credit or child benefit payments.
“Setting money aside for a rainy day is really important, especially with a looming recession. Ideally you should aim to have three to six months worth of outgoings set aside in case anything unexpected affects your income.
“Savings rates have started to become more competitive since the Bank of England’s steady increase of the base rate.
“Currently, the top paying easy access savings account offers around 1.8 percent AER. So, shopping around for the best savings account deals can help households boost their finances and enhance their saving power.”
As it stands, inflation in the UK is at 9.4 percent but the rate is expected to rise past 13 percent in the coming months.