Eli5: the UK economic crisis.

Question

I am very out of the loop with economy and politics but the economic crisis is slowly taking its toll and I wondered what the likelihood of seeing the end soon is.
Is this like the ’08 recession even though we aren’t technically in a recession? What difference does it make being in a recession and not?
Is it ever likely to get better? If so, realistically, when?

In: 2

Answer 1

The current UK situation is very different to ’08.

In ’08, there was a *banking/debt crisis*. Basically, banks can create money by borrowing it from the future. We call this borrowed money *debt*. Banks are supposed to be responsible in how much debt they create, but in the years leading up to ’08, they created way, way more debt than was sustainable, and ’08 was when it all collapsed. The banks realised the money they had borrowed from the future couldn’t be repaid, causing huge sums of money to vanish, which triggered the global recession.

This affected ordinary people because a lot of companies suddenly went bust, causing lots of people to lose their jobs. It was a crisis that affected people very differently – if you lost your job, it created huge problems, but many industries were less affected.

Right now, things are very different; we have an *inflation crisis*.

We can think of an economy as a gigantic machine made of many cogs, gears and wheels that all work together to create things. Right now, that machine has a lot of problems – worker shortages and high energy prices mean the cogs and gears of the machine are struggling to produce things as efficiently as it has in past, and prices are going up as a result.

Another way to think of inflation is the *value of money going down.* The utility of the money in your bank account is lower every day, so you are getting poorer, even though you have the same amount of money. The way to control inflation is to raise interest rates, so peoples mortgage payments are increasing massively, which puts pressure on homeowners. It also puts pressure on the renter market, because landlords need to raise rents on the property they have taken out mortgages to buy. This affects everyone, because the basic costs of living are increased.