The financial crisis that is currently gripping the UK stemmed from a reliance on ‘bad’ debt. The downfall to the economy began when some United States banks lent money to citizens to purchase property. These borrowers were categorised as ‘high risk’ as a consequence of issues such as low income or tenuous employment status; these issues were not identified as negating factors in mortgage allocation and subsequently, high risk lending continued with some banks continuing to supply hundreds of thousands of dollars to people who were simply unable to pay off the debt.

Initially properties whose owners were not able to meet the mortgage payments were repossessed and put back on the market; however, this led to conurbations becoming almost desolate with a multitude of houses with for sale signs pitched outside becoming a common occurrence. This compounded the problems further and culminated in many homeowners who were able to maintain their monthly repayments losing value off their property, until ultimately they found the price of their house’s reducing to such an extent that they ended up in negative equity and unable to sell.

The banks were unable to recoup their losses; they were not able to pay off the large amounts of money that they had borrowed of other financial institutions. Their lubricous attempts to make millions of dollars profit on the back of high risk borrowing backfired on a scale not seen since the recession of the 1930’s. The healthy bonuses that high flying graduates once collected frequently bit the dust as some of the biggest US financial institutions creaked at the strain of bad debt.

The negative effect of the bad lending rippled out to other nations and this, coupled with a global economic downturn and increasing unemployment within the UK manufacturing sector led to some commentators declaring recession. Some major institutions have fell victim to the recession; Woolworths is currently dying a slow death as once faithful customers’ circle the aisles like vultures eyeing up their prey. Some bargain hunters have even had the temerity to complain to long serving members of staff about the lack of discount being offered with little thought that the store, and indeed some of the staff, had been around for many years.

So how does this affect the average person? I have spoken to some who insist the recession is media led; indeed, some have said the media has been a significant contributory factor in fuelling the flames of panic, and, some might say, ‘recession hysteria’. Within the United Kingdom it appears like the media has ran with the recession story for some time now.

Almost every day in newspaper and radio stories feature recession themed headlines. This may have led to some people doubting recession as they have not directly been affected. This however has recently changed as the Prime Minister lowered VAT to 15%. Every person within the UK who purchases almost anything from anywhere can is experiencing and is subsequently become affected by the Governments response to the UK’s economic slowdown.

Gordon Browns once rigid fiscal handling has turned on its head with what some may is a massive gamble. Germany has recently commented that the UK’s response to lower the VAT rate, in return for increased borrowings in the future as a measure to stimulate the economy may prove unsuccessful. Personally I would not be attracted into a shop to purchase an item, simply on the basis of a 2.5% reduction and I would consider this to be a political move with little substance.

Frivolous borrowings will certainly increase at this time of year as people try and sustain the festive spirit by purchasing needless items for distant relatives. Credit Cards, Payday loans and increased overdrafts are just some of the methods to obtaining credit; however, a word of caution is needed. The times of easy credit whereby banks and credit card companies threw money at all those that requested are but a distant memory. Despite the Global financial crises that is even affecting once deemed untouchable nations such as India and China, recession is here and indeed, pertinent to us all.