The UK’s economic outlook for 2022 doesn’t make for happy reading. Consumer spending is slowing as the cost of living increases and businesses are also seeing expenses rise, a costly combination that looks set to worsen.
The country has already experienced record-breaking inflation this year–reaching 9%, but expected to rise to double figures later on in 2022–and now it seems the UK could be on the cusp of a recession.
In economic terms, the UK is experiencing stagnation and inflation, a double-whammy of risk termed stagflation which are warning signs for a full-blown recession. Officially, this will happen if UK GDP falls in two successive quarters. If this does happen over the next few months, businesses could experience a very difficult Q3 or Q4.
But what would it actually mean for the UK to enter an official recession? We take a look at how it might affect small businesses and what you can do now to prepare.
Unpredictable Cash Flow
Rising costs and uncertain consumer spending during a recession will undoubtedly lead to more unpredictable cash flow. This could make it more difficult for you to plan for future expenses or even pay day-to-day bills.
As a result, you should spend more time monitoring your cash flow for potential problems, and try to solve these as soon as they arise. Waiting could lead to further financial issues.
It Limits Growth
Growing during a recession is difficult. If your business is seeing increased outgoings and fewer ingoings, you may have to put your plans to expand on hold.
With banks putting a limit on borrowing, it can also be difficult for small businesses to access financial assistance for their business. This puts further strain on the ability to grow.
Consumers Are More Careful
One of the biggest impacts of a recession is that consumer spending naturally decreases. Businesses in the UK are already seeing the effects of this as household bills rise drastically, and it could become much worse.
In a recession, it’s unlikely that consumers will branch out into trying new products, instead choosing to spend their money on basics and brands that they already trust. Consequently, this could affect your marketing strategy. For example, you may use targeted marketing to only advertise to customers you know are already interested in your products.
Our Advice
A recession is scary for any business, but even more so for startups and SMEs. While the probability of a 2022 UK recession looks almost certain, this doesn’t necessarily spell disaster for your business.
The most important thing to remember is to plan early for any financial hiccups. Spend some time now evaluating your financials for any problem areas and you’ll be prepared if the worst happens.
