What is a recession?
In short
A recession is a period when the economy shrinks, so the country is producing less than it was.
In plain words
In the UK a widely used rule of thumb is two quarters in a row of falling real GDP. That technical recession is a headline test, not a full verdict. How deep the fall is, how long it lasts, and what happens to jobs and incomes all matter. Some slowdowns hurt a great deal without ticking the two-quarter box. A very mild two-quarter dip can be over quickly.
A simple example
A factory town sees orders dry up. Shifts are cut, a shop on the high street closes, and tax receipts slip. If that pattern is widespread enough that measured output falls for half a year, commentators will call it a recession. One struggling shop, or one cold month for retail, is not.
Why it matters
Recessions are when unemployment usually rises and pay rises become harder to win. Firms delay investment. The government typically borrows more, because benefits rise and tax revenue falls, just when it may want to spend to cushion the blow. The Bank of England may cut interest rates if inflation allows. A recovery can start in the data while the mood still feels bleak, because output often turns before confidence does.
Easy to mix up
A recession is not the same as a fall in house prices, a fall in the pound, or a rise in inflation, though those can happen alongside it. It is also not a depression, a word kept for a much deeper and longer collapse. Two good months do not end a recession any more than one bad month starts one. The usual test uses whole quarters of GDP.