Working within the business cycle
A Building Societies Association case study

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Page 5: Recovery

A recovery follows a recession. Recovery is a time when the economy becomes stronger and there is an upturn in the business cycle. More jobs are created and more goods and services are supplied by businesses. Unemployment begins to fall and, very cautiously, consumer spending starts to increase.

Recovery can occur for a number of reasons. In order to stimulate economic activity the government may intervene by, for example, increasing its level of spending or reducing taxes. In December 2008, the standard rate of VAT in the UK was temporarily reduced (until January 2010) from 17.5% to 15% in an effort to encourage consumers into the shops. Firms that had run down stocks of goods during the recession may increase their production, placing orders with their suppliers and taking on more staff.

Increased investment in the UK by both domestic and foreign firms can also boost consumer confidence. This can create jobs and stimulate greater business activity in the economy.

In this phase of the business cycle building societies will attract customers. As new customers place their savings with building societies, this will in turn kick-start the societies' ability to provide new mortgages. During the recession building societies have offered their members the best value possible in difficult market conditions. For example, a recent survey showed that, of the most consistent performing savings accounts on offer in January 2010, 73% were provided by building societies.

Building societies have a huge responsibility as the UK emerges from recession. They need to provide a range of products and services as members' needs begin to change in response to the new conditions. The actions of financial institutions have a knock-on effect for the economy as customers invest in new homes or borrow for other major purchases. All must still exercise care when considering the affordability of the mortgage products they offer.

Building Societies Association | Working within the business cycle