Enough of today’s doom and gloom! We decided to take a look back at the past to see the effects of previous recessions and see what lessons we could draw for now and the future. 

In the second half of the 20th century the UK experienced three recessions: 1974/75, 1980/81 and 1991/92. Each of these followed a typical pattern:

• 2 years of decline in GDP and consumer spending
• 1 year of recovery, followed by “business as usual”
• Substantial rise in unemployment – pain concentrated on an unfortunate minority

And could mainly be attributed to causes such as “overheating” (e.g. asset price bubble) or key raw material price hike (e.g. oil).  

Taking a long view of these past downturns has let us identify the 4 P’s of Recession:

• PAUSE: In long term economic growth and associated market developments (e.g. Premium segments stop growing)
• PRESSURE: Cull of weak/struggling economic enterprises (stimulus for restructuring)
• PAIN: Unemployment and fear of unemployment engender more cautious consumer attitudes (aspiration retrenchment)
• POLITICAL RESPONSE: Either “change” or “more of the same”

In the UK the recession of 1974/75 and 1991/92 produced a “more of the same” response; the 1980/81 recession was associated with a “change” response.

However, while recession produces a short-term effect on markets, this effect is typically small when viewed against the longer term perspective.

Take for example the numbers for holidays taken abroad by UK citizens:
1971 – 4.2 million
1981 – 13.1 million
1991 – 20.7 million
1998 – 32.3 million

In a similar manner, the evolution of underlying social trends is not greatly influenced by recession, as exemplified by the incidence of lone mothers (as % of all families with dependent children):
1971 – 7%
1976 – 9%
1981 – 11%
1986 – 13%
1991 – 18%
1996 – 20%

Overall then, we can compile a ‘Recession Scorecard’ – to remind us that it’s not always bad news…

Pros:

• Elimination of weak enterprises
• Corporate re-focus and re-structuring
• Limited effect on long-term trends

Cons:

• Short-term “freeze” in economic growth and consumer aspirations
• Extreme pain for some consumers (the unemployed)
• Cautious mindset (corporate and consumer) is unhelpful to business development in short-term

In the next instalments of Doomwatch, we’ll be looking at each of these former recessions in turn – their causes, their impact on consumer behaviour and the opportunities created for business and innovation.