What does shrinking economy mean

The generally accepted definition of a recession in the UK is when GDP falls in two successive quarters. The UK economy shrank by 2. That means adding up household spending, government spending, investment eg. This is little surprise, since household spending fell dramatically, due to shops, pubs and restaurants being closed for months during lockdown.

Factory and construction output also dropped, with many people unable to work during April and May. The biggest dip was in April, at the height of lockdown, before the economy started to recover in May. Latest Podcasts. Consistency versus Relentlessness 5th November Why is Bartering Bad?

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It's a sign the economy is doing badly. The first two quarters of saw GDP falling sharply, making it the worst recession on record, and the first in the UK since It usually means there are more jobs, and companies are more profitable and can pay employees and shareholders more. A growing economy also gives the government more money in taxes. So it can cut taxes, or spend more on benefits, public services and government workers' wages.

When the economy shrinks, all these things go into reverse. The third quarter of saw the UK economy growing again, meaning that technically the recession was over. July to September saw the fastest three-month growth on record - But what the figures capture is an economy shutting down and reopening again. Shops and restaurants closed in the spring during the nationwide shutdown, and reopened in the summer. People started going out, taking holidays and getting back to some of their normal lives.

They spent more money, bringing the amount of economic activity closer to where it was last year. However there is still a big gap between how the economy was doing last year, and where it stands today. Though the recession is over, the economy is 9.

That reflects the fact that hundreds of thousands of people have lost their jobs, and millions are still on furlough, with the government paying most of their wages. Many businesses still have far less trade than before the pandemic.