As per reporting by the ONS (The Office for National Statistics) for the second quarter in a row, the GDP (Gross Domestic Product) of the UK has declined, meaning that for Q3 & Q4, GDP in the UK shrank by 0.5%.

This was the mildest start to a recession since the 1970s, with the last five in the UK seeing the economy shrink by more than 1%, and in further promising news, forecasters believe this will only be a short-term recession.

What caused the recession?

The BoE (Bank of England) has set interest rates at 5.25% (the highest rate in 16 years) to combat inflation, which has indeed shrunk from the 11.1% high in October 2022 to 4% as of February 2024. And whilst this is promising news, it does mean that the cost of borrowing is high. Furthermore, the inflation rate is still double the BoE's targeted 2%, so interest rates are unlikely to fall until the summer of 2024 at the very earliest.

Why raise the rates?

Increasing the rates forces people to stop spending as freely as the interest on borrowing for products such as mortgages, credit cards, and personal loans is higher.

By raising the rates, disposable income is lower, and it encourages people to save instead of spend which impacts services such as retail and despite Christmas, December retail sales fell by 3.2%. ONS figures show that all major sectors - services (by 0.2%), production (1%) and construction (1.3%) contracted in the final three months of 2023. 

What does this mean?

The promising news is that it's thought to be a short-term recession and despite this recession at the back end of 2023, the economy did grow by 0.1% in 2023, while not inspiring, does mean that there is a platform for growth in 2024. 

Interest rates will likely come down this year, which should help ease the burden of the ongoing cost of living crisis. And lead to a stronger end of year for the UK. As these interest rates come down, and if inflation remains low, this should have a corresponding impact on growth for the UK as it will free up capital for investment.

Politically it could have a large impact on current Prime Minister Rishi Sunak, who pledged last year to halve inflation and grow the economy. Whilst the inflation rates coming down will be a sign of promise, the recession will come as a large blow to Mr Sunak & the Conservatives with an election looming.

The Bank expects that the world economy will grow by only 1.7% this year - a 1.3% decrease from what it predicted in June.

The most recent report contributes this to the expected factors - the war in Ukraine and the COVID-19 pandemic.

It’s not just employers who are feeling anxious. With unemployment rates forecast to rise to 6.5% by 2025, many employees will be worrying about job security, against a backdrop of the cost of living crisis and rising interest rates. 

All of this does not make for a happy workplace. But over the years I’ve learned some important lessons about how employers can navigate choppy waters, conduct scenario planning, and cut costs without causing upset among their teams. Here are five key principles that business leaders should keep in mind.

1. Be directionally right — not precisely wrong

Obsessing over minor savings in every area of your operation could mean that you ignore the bigger picture. You should take the same approach as a physicist — think about orders of magnitude and start with a high-level view rather than going granular straight away.

With this outlook, you can perform sanity checks on a regular basis and not get sucked into the trap of fine-tuning every number to the second decimal. Putting everything under a microscope is a waste of time if the big numbers still don’t add up. Remember what your ultimate goal is and make sure you take big strides towards it — not baby steps.

2. Cash (management) is king

Developing knowledge around the principles of cash management within any organisation is a good idea whether times are hard or not. While business leaders are often skilled in understanding and manipulating profit and loss, they often don’t know the ins and outs of cash management and cash flow.

Making cuts across the board is never the right approach. Fat is always distributed unequally in businesses, so a surgical approach is required. Cut spending in some areas, while investing in others that will help you to grow more muscle. In an ideal world, you’ll cut out all of the things that don’t work, and further invest in all of the things that do.

3. Keep it simple

Sophisticated business models with high levels of functionality and reams of features often aren’t suited to tough economic circumstances. Think about what it is that your customers really need at this time and focus on that part of your offering, and leave the bells and whistles for another day.

In my experience, building a simplified business model can be more difficult than building one with high levels of complexity; but remember to focus on the larger orders of magnitude as you will have very little margin of error when the recession starts to bite.

4. Keep providing the good coffee

You won’t make major savings by switching to a cheaper brand of coffee, but you will undermine staff morale. Not just because staff will waste time complaining to each other about the standard of the new brand, but they’ll also go out in search of decent coffee — time that a happy employee would otherwise be spending productively.

It’s not just the coffee that you need to preserve; think carefully about cutting back on employee perks. If you need to make cutbacks, consider the biggest cost buckets first. No negotiation is taboo, even rent. Could you make savings by moving your team into a smaller office? I’ve seen facilities teams perform miracles in optimising office space.

5. Celebrate your victories

Making sure everyone gets a pat on the back when the business has hit KPIs and significant milestones is essential for boosting morale. Take time to show everyone that their efforts are appreciated and give them an opportunity to let their hair down and share in the glory of their collective efforts.

When times are tough, it’s important to ensure you focus on achievable goals. Revenue growth might not be possible, but growing market share may very well be realistic. When the turnaround comes, you’ll have a team of happy, motivated people hungry for more success, putting you in a great position to reap the rewards.

In an economic downturn, technology can help with financial planning and forecasting, but there’s no crystal ball. Stakeholder management and communication are therefore key in these times. Be honest with your team and be absolutely clear about what you are trying to achieve.

Cost-cutting is often necessary in the face of recession, but businesses shouldn’t cut back on spending which will negatively impact staff or the offerings of the company. By taking a simplified approach, focusing on the things that really matter and ensuring staff morale is high, businesses can put themselves in the best position to weather the economic storm.

Despite previous predictions that the economy might grow between July and September, the central bank now estimates that it will shrink by 0.1%.

This is the Bank’s seventh in a row interest rate increase as it attempts to tackle soaring prices.

The Bank of England said today: "Should the outlook suggest more persistent inflationary pressures, including from stronger demand, the [rate-setting] committee will respond forcefully, as necessary."

Paul Dales, chief UK economist at Capital Economics, commented: "That new 'stronger demand' bit seems like a not-so-subtle reference to the loosening in fiscal policy that's expected to be announced tomorrow.

"In short, the Bank has indicated it will raise rates further to offset some of the boost to demand from the government's fiscal plans."

It's pointed out that the rise in rates has been done by central banks "with a degree of synchronicity not seen over the past five decades" to tackle soaring prices,

The ECB has increased its key deposit rate – or how much interest it pays on deposits - to 0.75% from 0% and lifted its key refinancing rate – or how much banks have to pay when they borrow from the ECB - to 1.25% from 0.5%.

"Price pressures have continued to strengthen and broaden across the economy," said the ECB.

"I cannot reduce the price of energy," said the president of ECB Christine Lagarde.

"I cannot convince the big players of this world to reduce gas prices. I cannot reform the electricity market. And I am very pleased to see that the European Commission is considering steps to that effect because monetary policy is not going to reduce the price of energy," she continued.

Lagarde added that if gas prices continue to "skyrocket", a recession would be on the horizon. If Russia were to fully cut gas supplies to the European Union and it becomes impossible to secure alternative gas supplies from the US, Asia or Norway, the ECB expects gas rationing across the Euro area and a recession in 2023.

Official figures by the Office for National Statistics (ONS) show that GDP dropped 0.1% during the three months to the end of June, a significant step down from the first quarter of the year when GDP increased by 0.8%. In June, GDP was down 0.6%. 

The ONS reported that the country’s service sector was hit particularly hard, falling 0.4% over the quarter. 

In a comment, ONS director of economic statistics Darren Morgan said, “With May’s growth revised down a little and June showing a notable fall, overall the economy shrank slightly in the second quarter.”

“Health was the biggest reason the economy contracted as both the test and trace and vaccine programmes were wound down, while many retailers also had a tough quarter.

“These were partially offset by growth in hotels, bars, hairdressers and outdoor events across the quarter, partly as a result of people celebrating the Platinum Jubilee.”

The Bank of England has warned that the UK may enter into a recession later in 2022 and believes this could be the longest economic downturn since the financial crisis of 2008.

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According to the International Monetary Fund (IMF), the UK is also poised to record the slowest growth of the G7 richest nations through 2023, with the region’s growth forecast expected to fall to 0.5% (down from the original prediction of 1.2%).

Because of this, businesses may be considering new and accessible funding options to help consolidate their position or drive growth in the near term. But what steps can you take to get financial help for your business?

What Are The Most Popular Funding Options?

In truth, you’ve never had more options in terms of how you seek out finance from your business, with more flexible borrowing options having evolved since the great recession in 2007.

The most well-known lending option remains through banks, which will offer secured loans that usually use a business asset as collateral. However, many firms lack the resources or assets to secure such funding and often turn to higher costs but more flexible options to achieve their objectives.

Many of these options are unsecured, including crowdfunding and peer-to-peer lending. Such options either require you to effectively sell equity in your business or borrow at a higher rate of interest, so it’s important to make an informed decision based on the stage and scale of your venture.

In some cases, you can also seek out venture capitalist investment, but this may require you to showcase a track record of performance and revenue.

Check Out What Government Support Sources Are Available?

There are also government and public provisions available for businesses, with the gov.uk website serving as a single point of access to all government services and information.

Such resources can cover everything from providing information and guidance on launching a new business to your statutory rights and obligations as an employer. It also includes the ability to search for support using the platform’s business finance and support bar, which can unlock funding and grant options for entrepreneurs.

The latter is an interactive tool that can be searched through a number of different filters, including sectors, business size and location. This way, you can tailor grants and loans to suit your needs while also assessing mentoring and consultancy services.

The National Business Support Helpline is also a key component of the government’s support and is ideal when seeking guidance on how best to fund your business. 

Are There Non-Loan Ways To Fund A Business?

If you’re unable to seek funding or qualify for a grant, you may want to consider alternative methods of sustaining and growing your business.

If your venture has fallen on hard times and can’t access credit, for example, you may find value in either insolvency or corporate restructuring. The latter can help to identify savings and create structures and ensure businesses remain viable while allowing them to continue to generate revenue over time.

From a start-up perspective, another option is to consider bootstrapping your venture and evolving it slowly over time without a cash injection. Of course, this requires knowledge, discipline and considerable hard work, but it can help to minimise corporate debt and optimise financial performance.

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The news comes not long after the Federal Reserve upped interest rates by three-quarters of a percentage point to a range of 2.25%-2.50% in a bid to curb growth and ease price pressures.

Despite the report, Federal Reserve Chair Jerome Powell thus far maintains the view that an economy that is adding hundreds of thousands of jobs per month is not experiencing a recession. Over the past months, Powell has vowed to take action against record-high inflation. 

"We do want to see demand running below potential for a sustained period to create slack and give inflation a chance to come down," Powell commented on Wednesday. 

"It's also worth noting that these rate hikes have been large and they've come quickly, and it’s likely that their full effect has not been felt by the economy. So there’s probably some additional tightening - significant additional tightening in the pipeline."

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What has happened?

The euro has fallen to the same value as the US Dollar, with 1 EUR being worth exactly 1 USD, according to many forex traders who have been keeping a close eye on the market. This is big news as this is the first time their values have been equal in 20 years.

Why has the euro lost value?

One of the main reasons that the euro has lost its value is the conflict in Ukraine. Russia, which invaded Ukraine at the end of February, is one of the main suppliers of gas to Europe. However, it’s thought that Russia will retaliate against western sanctions by completely cutting off the gas supply to Europe. 

This uncertainty amid rumours that the 10-day scheduled shutdown of the Nord Stream 1 could be made permanent has contributed to the energy crisis in the UK. 

What does this mean for Europe?

Unfortunately for us in Europe, it’s not good news. With many countries already on the cusp of a recession, the euro losing its value isn’t going to help the situation. The fall of the euro confirms the fact that current political situations and the energy crisis are going to have a knock-on effect on our bank accounts. 

What does this mean for the pound?

Unfortunately, the pound is also unable to escape the dip in the European economy. So far, the pound has reached its lowest rate since March 2020, when the pandemic hit. 

In practical terms, this means that imports such as food will become more expensive, pushing our monthly food bills upwards. We’ll also see an increase in commodities such as petrol. For those going abroad on holiday this summer, it’s not good news either. With a weaker pound, families will get less for their money when buying abroad. 

What to expect next?

Although it may seem like a lot of doom and gloom, we haven’t entered into a recession yet. So, there’s always the potential that the times of hardship will pass, and the currency values will climb back up to their levels before conflict breaks out in Europe. 

However, on the other end of the scale, there is also the possibility that the pound and euro will continue to fall, leading to a full-blown recession. On the other hand, the dollar has remained strong throughout, so it’s clear that the recession is just Europe-wide. 

What will happen for certain? Only time will tell.

In 2021, the Big Five tech giants—Apple, Amazon, Google (Alphabet), Meta, and Microsoft—generated a combined $1.4 trillion in revenue. But as the saying goes, “what goes up must come down,” which is precisely what many analysts believe is occurring, with the recent market crash. Fear is spreading quickly that we may be about to enter an era just as bad as the dot-com burst.

How bad will it really be, nobody knows. But if one thing is for sure, the companies that put plans in place to ride out the storm will certainly fare better than those who do not.

In fact, if we take a look back to the financial crisis of 2008, 14% of public companies managed to achieve a sustained period of growth, largely due to them acting early, taking a long-term approach, and focusing on growth and not just damage limitation. With this in mind, we have created this article with four quick tips that discuss how tech companies can prepare for the unknown and give themselves the best chance of making it out the other side unscathed.

Focus on product-led growth

With client acquisition expenses skyrocketing and a global recession on the horizon, it may be worth contemplating a shift to product-led growth (PLG), a new go-to-market approach that emphasises the product as the key engine for acquiring, activating, and retaining consumers. Instead of spending money on advertising or sales outreach, the product acts as the company's marketing engine.

Most PLG models give priority to the end-user being able to gain easy access to the software, so they can interact with it and give it a try for themselves. The purpose behind this approach is that it creates an environment where the prospect can discover the product's value in a situation relevant to their particular wants and needs. Moreover, prospects are significantly more likely to make the purchase and convert from a lead to a paying customer after they have experienced value personally. 

Fortunately, PLG is simple to achieve with SaaS sales experience solutions like Walnut, which specialises in facilitating high-quality product demos that are engineered to convert from the bottom up. Walnut's principal goal is to provide the most customer-centric experience conceivable by supplying sales representatives with all the tools and capabilities they need to directly appeal to each prospect's specific wants, needs, and pain points.

Walnut does this with its simple, intuitive no-code software, which eliminates the need for back-end teams such as graphic design and IT departments to be engaged in demo production. This gives the teams presenting the demos complete control and creates an atmosphere in which prospects may freely interact with your products in a way that is directly relevant to their requirements, thus facilitating a product-led growth strategy.

Drop unprofitable products/services

During a market crash, cash is tight. Typically, this results in both consumers and businesses looking for methods to reduce expenses, and tech companies should be no different. However, it's savvier to take advantage of a recession by eliminating any excess weight that your company has been carrying rather than cutting back on critical business operations.

For example, if your organisation has multiple MVP dream projects that are depleting your cash reserves, it would be prudent to postpone them until a later date. Remember that a recession is a great time to focus resources on what is already working for the organisation, not experimenting on unknowns. 

Reduce customer churn

As clients' budgets tighten, subscriptions may be one of the first things they decide to cut. To overcome this issue, SaaS vendors could provide clients with incentives or discounts to help them weather the storm. Take Salesforce, for example, which released a new business grant scheme in 2020 designed to help SMBs survive the early stages of the global pandemic.

While you don't have to go that far, things such as modifying subscription prices/plans, providing free trials on paid features, or introducing live technical assistance might help to persuade clients to continue with their existing SaaS solutions until economic conditions normalise. The aim of the game is to provide the most value to clients in order to gain their loyalty and reduce churn.

Don't kill off your marketing

Whatever strategy you use, it is critical that you resist the urge to halt your marketing activities when an economic slump is approaching (which seems to be what most companies like to do). For one reason or another, many organisations erroneously view marketing as a cost centre rather than a profit centre, especially when it comes to B2B companies. 

Unfortunately, organisations that reduce marketing expenditure and trim down content creation rapidly learn that the benefits earned by their marketing team in prior quarters are undone when they are let go or defunded. After all, search rankings deteriorate quickly, bidding strategies become ineffective, and algorithms change. While these companies may be more insulated from the short-term effects of the recession, they will likely suffer in the medium and long run and may find it difficult to recover the momentum they once had.

Conversely, tech companies can use poor economic conditions to their advantage by making smarter marketing decisions. Instead of cutting back, executives should view the recession as an opportunity to leverage a less competitive environment by raising marketing spending. In turn, this could create a competitive advantage over rivals, who could be scaling back and adopting a more short-term approach. 

Final word

Tech companies must use this time to prepare for the worst by implementing strategies to protect themselves from what is to come. Although, as we have touched upon, economic downturns often present an unlikely opportunity for firms to grow. Rather than sitting back and playing defensive, the market crash may actually be a time that tech companies can use to seize a larger market share by ramping up marketing efforts, streamlining their product offerings, and focusing on delivering maximum value to their current user base. 

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In June, Federal Reserve officials highlighted the need to tackle inflation, even if it came at the cost of slowing the economy amid the looming threat of recession. They said that the US central bank’s July meeting would likely see another 50 or 75 basis point move on top of a 75 basis point increase that was approved in June. 

“In discussing potential policy actions at upcoming meetings, participants continued to anticipate that ongoing increases in the target range for the federal funds rate would be appropriate to achieve the Committee's objectives,” the minutes read.

“In particular, participants judged that an increase of 50 or 75 basis points would likely be appropriate at the next meeting. Participants concurred that the economic outlook warranted moving to a restrictive stance of policy, and they recognised the possibility that an even more restrictive stance could be appropriate if elevated inflation pressures were to persist.”

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