How to prepare your finances for a recession

The storm clouds of recession, that have hung over our heads for so long, have receded. We avoided a recession by the skin of our teeth at the end of last year, with the economy standing still in the last quarter.

However, while we’re out of the danger zone for now, the jury’s still out for the rest of the year.

The Bank of England is still convinced we’ll be hit by recession later this year, although it’s expecting it to be shallower and shorter than it had feared.

Meanwhile, the National Institute of Economic and Social Research has forecast that we’ll stay out of the clutches of a recession even then – and are set for a period of stagnation instead.

This article isn’t personal advice. If you’re not sure if a course of action is right for you, ask for advice.

Reasons to be cheerful

Whether the tougher times ahead are stagnation or recession, there are some positives to cling to, which mean things might not be as bad as you fear.

The labour market is fairly tight. The unemployment rate has risen very slightly, but is still just 3.7%, and while the number of vacancies has fallen, it’s still relatively high compared to the number of unemployed people.

For homeowners, higher mortgage rates clearly bring huge challenges. Those with larger mortgages will feel the impact of rate rises magnified even more. However, for the millions on fixed rates that expire after the end of the year, there’s better news. That’s because the hit from remortgaging is likely to be far smaller.

What could house prices do in 2023?

While rising prices have damaged our financial resilience, the HL savings and resilience comparison tool shows that on average, we’re still better off than before the pandemic hit.

However, that doesn’t mean we can throw caution to the wind. It’s worth battening down the hatches just in case.

How to prepare your finances for a recession

Of course, the overall picture won’t necessarily reflect your personal circumstances, and stagnation or recession could take a serious toll. It means it’s worth taking stock, and preparing for whatever the future holds.

Revisit your mortgage – if you’re set to remortgage this year, you face the tricky question of whether to remortgage now, or join those reverting to the standard variable rate and waiting for fixed rates to fall. It’s worth knowing your options.

Remortgaging in 2023 – should you remortgage now or wait?

Look at your spending – one useful way to help shelter yourself is to cut your costs and build wiggle room into your budget. Our budget calculator is a useful place to start.

Build your emergency savings safety net – it’s a good idea to have three to six months’ worth of essential spending in a competitive easy access savings account. If you’re retired, you should have more like one to three years’ worth.

How to build an emergency cash buffer

You should also have any money you need over the next five years in savings. It’s often worth shopping around for a better rate than on the high street.

Our Active Savings service lets you view consistently market-leading rates from our bank and building society partners, all in one account. Inflation can erode the value of money over time.

Savings in 2023 – have fixed rate savings peaked?

Have an employment Plan B – this might simply mean doing any preparation you’d need if you were to lose your job. You might want to update your CV and work on your networks – both in the real world and on social media sites like LinkedIn. That way if the worst happens you can try to get back on track as quickly as possible.

There’s always the chance you won’t need to fall back on any of this, and that we’ll escape a recession and survive the storms of stagnation. But it’s far better to build in protection that you don’t end up needing, than needing protection you haven’t prepared for.

How to invest in a recession

This website is issued by Hargreaves Lansdown Asset Management Limited (company number 1896481), which is authorised and regulated by the Financial Conduct Authority with firm reference 115248.

The Active Savings service is provided by Hargreaves Lansdown Savings Limited (company number 8355960). Hargreaves Lansdown Savings Limited is authorised and regulated by the Financial Conduct Authority (firm reference number 915119). Hargreaves Lansdown Savings Limited is authorised by the Financial Conduct Authority under the Electronic Money Regulations 2011 with firm reference 901007 for the issuing of electronic money.

Hargreaves Lansdown Asset Management Limited and Hargreaves Lansdown Savings Limited are subsidiaries of Hargreaves Lansdown plc (company number 2122142).

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