The Bank of England is forecasting a long UK recession, lasting right through 2023. Laith Khalaf, AJ Bell’s head of investment analysis, says markets aren’t afraid and investors shouldn’t be either.

“Investors can take some consolation from the fact that the Bank of England’s doom-laden forecast barely caused a ripple on the stock market. 

“That’s because the market is already anticipating poor economic performance, and so prices have already adjusted.”

Khalaf offers the following five tips to investors, which should apply whether investing through a pension or tax-free Isa.

1. Keep calm and carry on investing. Markets may still suffer setbacks during the downturn, but a lot of bad news is already reflected in company valuations, Khalaf said.

"When sentiment turns more positive, markets can accelerate sharply, leaving the uninvested behind.”

The UK only makes up around three percent of the global economy, and other countries may do better than us. 

This offers a silver lining for investors. “Much of the stock market, even in the UK, derives its earnings from a variety of international sources.

“Recession for the UK economy doesn’t necessarily spell poor returns from investing.”

2. Don’t invest all of your money at once. In turbulent times, investors should consider drip feeding any fresh funds into the market gradually, he says.

That is less risky than paying in a large lump sum, which could backfire if markets crash soon afterwards.

If you invest every month, stock market volatility can work in your favour. That's because if markets dip one month, your monthly payment will buy relatively more stock for the same amount of money. You will reap the benefits when markets recover, as history shows they always do in the end.

3. Target stocks paying attractive dividends. Dividends are the regular payouts companies make to reward shareholders for holding their stock.

UK companies listed on the FTSE 100 pay some of the most generous dividends in the world. The index is expected to deliver a total cash return from of 5.4 percent this year, from dividends and share buybacks, worth £81.2 billion, AJ Bell calculates.

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These funds will also appeal to more cautious investors because they focus on preserving your capital from a stock market crash. “While they’ll never shoot the lights out if markets are roaring away, they offer downside protection when things take a turn for the worse.”

Multi-asset funds can still fall in value, but managers aim to minimise the losses. Khalaf admires multi-asset funds Personal Assets Trust, Ruffer Investment Trust and Rathbone Strategic Growth. 

5. Consider investing in smaller companies. Smaller companies typically fall further in a recession, but bounce back faster when the economy recovers. “The average UK smaller companies fund has fallen by more than 20 percent so far this year, which suggests a lot of bad news has already been priced in.”

Funds to consider include Abrdn UK Smaller Companies Growth Trust and TB Amati UK Smaller Companies, Khalaf adds.