Inflation Behind Bigger U.K. Contraction

Looking at the latest more detailed third quarter GDP reports from the U.K. and Germany, one can notice one interesting fact. They had nearly the same nominal GDP change in the year to the third quarter, namely -3.2% and -2.9%.

Yet because the domestic demand deflator rose only 0.2% in Germany and 1.8% in the U.K., the difference in the change in the real value of GDP was far greater, -3.1% versus -4.9%, meaning that the U.K. had a more severe recession because of higher inflation.