The United Kingdom has entered an economic recession after its economy shrank for two consecutive quarters. The U.K.’s economy contracted 0.3% in the final three months of 2022. That’s a contraction rate of 1.2 percent per year.
The drop exceeded expert forecasts of a 0.1% drop, and it marked the UK’s first recession since 2020 amid COVID lockdowns. Falling output in services, manufacturing, and construction all contributed to the downward trend.
High inflation and interest rates over 10% have weakened consumer spending power and business investment. The Bank of England has aggressively raised rates to control inflation, but this also slows growth.
The recession creates an obstacle for UK Prime Minister Rishi Sunak as he weighs when to call an election. The Conservative Party has been in power for about 15 years, but opinion polling currently shows his Conservative Party lagging the opposition Labour Party.
Separately, Japan also announced a recession. The island nation’s economy shrank for the last two quarters of 2022.
Japan thereby dropped from being the world’s third-largest economy to the fourth-largest (behind the United States, China, and Germany).
Like the UK, factors like an aging population, immigration restrictions, and weak wage growth have constrained Japan’s growth for decades since its rapid rise after World War II.
India, along with other emerging nations, is expected to surge in the years ahead… and it may even overtake Japan.
The news underscores economic challenges facing mature economies like the UK and Japan. As emerging economies drive more global expansion, mature nations may debate reforms aimed at reinvigorating domestic innovation and productivity.
The Associated Press contributed to this article.