Terrible, not technical: the reality of recessions

The UK has entered a technical recession. Your introductory economics textbooks will tell you this means GDP, the collective output of goods and services, has declined for two consecutive quarters. However, the state of the economy cannot and should not be reduced to mere technicalities. Recessions have a devastating impact, damaging livelihoods, eroding living standards, and compromising the wellbeing of entire communities.

The prospect of another recession is especially ominous when we consider the recent persistent economic malaise the UK has faced. Even before the Covid-19 pandemic, the UK had barely recovered since the financial crisis. Excessive bailout packages which caused national debt to surge, provided the necessary political cover for a prolonged period of painful austerity which stifled demand and subdued growth. The more recent cost-of-living crisis has only exacerbated and exposed the failings of the UK economy.

As Torsten Bell, Chief Executive of the Resolution Foundation, pointed out, GDP in the UK is 24% lower than it would have had it continued on its pre-financial crisis trend. However, the consequences of prolonged stagnation have manifested in more tangible ways for large parts of the country. We have witnessed rising demand for foodbanks, hospital waiting times, homelessness, poor health, and housing costs. Across so many indicators, our economy is proving unable to meet the needs of a growing proportion of the population.

Entering a recession under such circumstances will only aggravate our economic model's inadequacies. Vast inequalities already exist between people and place. Low-paid and insecure work has proliferated, leaving millions exposed to economic volatility. Public and civil society organisations have struggled to maintain services that can keep up with demand. We need action to protect the most vulnerable and address the shortcomings in our economic approach, which has severely undermined our shared prosperity.

However, the only action the government has floated so far has been the prospect of tax cuts. This will have a limited financial impact for millions, especially on meagre incomes. When you consider the extent to which rent-seeking has become commonplace in the UK economy and the imbalance of economic power that has led to workers paying significant proportions of their income to enjoy basic amenities such as housing and energy, it is hard to imagine this will provide much respite at all. Tax cuts would also necessitate further cuts to struggling public services.

We need to take this moment to re-assess how our economy functions. For many, this recession is just a continuation of economic decline. GDP per head has been shrinking for a lot longer than the last 6 months, and wages and productivity have stagnated a lot longer than that. Meanwhile, as news of the recession broke, British Gas reported a tenfold increase in profits. There is a jarring disconnect between the national economy's performance and the wealth of the richest individuals and corporations.

Economic reform is needed to deliver shared prosperity. This means investing in vital services and critical infrastructure. It means supporting the creation of good quality jobs where workers have a voice. It means distributing wealth to support economic development in every part of the country. We cannot keep relying on technicalities and textbook definitions to convince us the economy is doing fine when the material circumstances of millions have diminished.

A recession is a recession. It will dampen our future and blight the lives of millions. Now is the moment to recognise the need to transform our economy so that it is centred around the needs and expectations of the people. It is not a case of growth for the sake of growth but growth to start generating the resources we need to deliver sustainable and shared prosperity for current and future generations.

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Dean Hochlaf is a policy and research professional. Since graduating from the University of Kent with an MSc in International Finance and Economic Development, he has worked in a range of think tanks and is currently head of policy at Social Enterprise UK.

All thoughts and views are solely of the author