UK and Japan in recession: the economic data from London and Tokyo

Elizabeth Smith

UK GDP data arrives. They are worse than expectations and certify that London’s economy is entering a technical recession. In fact, for the last quarter of 2023 we have -0.3%, against the -0.1% forecast. Adding this figure to -0.1% in the third quarter of 2023, we are therefore in what economists define as a technical recession. Bad news, although not unexpected.

And there is a technical recession in Japan too. From Tokyo comes -0.4% for the last quarter, this unexpected one, which adds to the terrible data recorded for the third quarter of 2024.

Winds of recession that are therefore blowing strongly and which add concern to a global economic situation which has yet to decide whether to opt for a soft landing or in a period of significant economic constraints which will also call central banks to lenier advice regarding interest rates.

Recession in the United Kingdom: the data

The data was certainly not edifying. While forecasts pointed to a more modest – but still in recession territory – -0.1%, numbers are arriving from London that are worrying most. The data for the last quarter of 2023 in fact speaks of a decline in gross domestic product of -0.3%. Technical recession, and overall growth for 2023 which was only 0.1%, the lowest figure since 2009.

The data has also put pressure on the Pound, thanks to the fact that everyone, correctly in our opinion, believes that the next topic to be discussed will be from the Bank of England and will concern the possibility of intervening on rates more quickly and consistently.

In fact, it is obvious that the restrictive monetary policies of 2023 will be considered the main causes of an economic performance that is certainly not positive.

And it will also be a political problem for Rishi Sunak, given that he will face a double vote in two seats in the United Kingdom, from which relative strength on the part of the opposition could emerge. Relative strength for which he will have to give an account to his party colleagues.

For now, no messages are arriving from the Bank of England. As soon as they are available, the markets will have no choice but to react. In addition to the stock markets, the bond and Forex markets are also under observation.

Bad economic data in Japan too

Things are no better in Tokyo. The GDP data for the last quarter of 2023 signal the entry into technical recession for the Japanese economy as well. The situation is overall different from that of Europe, London and Washington, however.

For Japan, the return of interest rates to positive territory has been expected for some time now, a return which however will have to deal with a weakened economy which will not be able to reasonably cope with an increasing cost of capital.

A very complex situation, with the yen having returned above 150 against the dollar and which will be a sort of special observation also to understand what the next moves of the Tokyo Central Bank will be.

Overall, the picture emerging from the latest economic data, although partly expected, is not the best. However, the stock markets responded positively at least in London, most likely pricing in a greater openness to possible early cuts.

The Nikkei also performed well, with operators becoming less and less convinced of the new hawkish attitude of the Bank of Japan. An attitude about which there were doubts even before this terrible data coming from the Japanese GDP.

Read also: Brexit, signs of disappointment: 7 years later Britons have more faith in the EU than in Westminster

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