What is a recession?

A recession is defined as a reduction in a country's entire income and output (known as a Gross Domestic Product or GDP) over at least six months. This is caused by people spending less, businesses making less and banks being more reluctant to give people loans.

Recessions generally start because of a loss of confidence in the financial system. People hold on to the money that they have, rather than spend it, and that means there is less money in circulation.

It's hard to predict how long a recession will last. The last UK recession, from 1990 to 1992, was followed by a long period of economic growth right up to 2008.

Current crunch crisis

The current recession has come about for many reasons, but mostly because of worries about the banking system.

UK and American banks took huge risks with their lending and investments and when things started to go sour, debts couldn't be repaid. One of the main causes of this are sub-prime mortgages, where banks lend to people who are considered less likely to be able to pay them back.

When large numbers of mortgage-payers miss their repayments, the banks lose money. With less money available, they can't lend to businesses, meaning less investment and reducing the potential to make a profit. With less chance to make money, fewer people want to invest in companies, and this caused the value of the stock market to fall, or 'crash'.

World governments had to act fast to save the financial system. They are trying to get people to start spending, by making billions of pounds available and trying to remove bad debts. It's still too early to say how effective this action will be.

The highs and lows

Recessions are a time of uncertainty and concern. These are some of the ways you could be affected:

• Your job could be at risk, and you may find it difficult to get work
• It's harder to get a loan or credit cards, and banks will start calling loans in quicker
• The property market seizes up, and that makes it difficult if you are looking to buy or sell
• More people have mental health problems as they cope with rising debts, unemployment and housing problems
• "When they first started talking about the recession I didn't think it would really affect me. Then the attendance dropped massively at the club I worked at," says John from London. "As a recent graduate every permanent job I've had I've lost because of the good old last one in, first one out rule."

There are a few upsides:

• Some shops lower prices and put on more sales, so you'll bag yourself a bargain
• You'll stay in to watch more DVDs and find new ways to socialise with your friends
• You may have less money to spend and feel that life is duller, but in the meantime you'll discover plenty of activities that won't stretch your wallet
• "One definite upside of the recession for me is that the car has been cheaper to run," says Ben from North Wales. "Over the summer, it would cost over £40 to fill my car, it now costs about £32 for a full tank."

Is my job safe?

With less money going around the system, there are fewer jobs available. Some sectors are seen as more secure. Working in the public sector (eg for the council, in teaching, the NHS or the police) are regarded the least at risk. Other services such as IT industry, HR and energy and fuel companies are seen as fairly safe.

And a recession is often seen as a good time for entrepreneurs and new entrants to the market, so if you've ever wanted to run your own business now could be the time to give it a go.

Tightening the money belt

While some prices might be cut during a recession, others could rise as companies try to make money where they can. But there are hardship loans if you're at university, and benefits if you're on low income that can help. You can also help yourself by doing the following:

• Don't ignore people you owe money to (creditors). Get help with debt.
• If you have debts, there are some you should pay first before others, such as mortgage or rent debts. If you don't pay these, you could lose your home, Debt advisers can help you plan your budget and pay your priority debts first.
• Download a budget form and see if you can save money on bills, food and travel. Also check if you're claiming all you're entitled to such as housing and child benefit.
• You may be able to claim help with education costs and even get a grant to help you pay for things like fitting home insulation to cut your fuel bills.
• Your gas and electricity supplier may be able to help you too if you have fuel debts.
• If you are in work, you might get Working Tax Credit even if you don't have children. If you have children, are you claiming Child Tax Credit?
• If you lose your job, go to your local Jobcentre Plus office and start claiming benefits such as Jobseeker's allowance.

Written by Anthony Burt

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