British chancellor George Osborne has been warning the UK about the threat another eurozone recession poses to the UK.
He told the BBC: “The eurozone risks slipping back into crisis. Britain cannot be immune to that. Indeed, it’s already having an impact on our manufacturing and exports.”
There’s no doubt that Osborne has an incentive to spin any UK slowdown this way, because it absolves him of any responsibility. His critics say that the UK could have weathered the eurozone crisis more effectively if his public spending cuts were less aggressive.
But there’s no doubt that another crisis in the eurozone would weigh heavily against the UK’s economic growth. With terrible data coming out of Europe every week, some analysts are already predicting another recession by next quarter.
The Bank of England showed how the UK’s GDP performance seems to co-ordinate almost perfectly in recent years with shocks elsewhere (mainly the crisis in the euro area).
It’s pretty stark:
This is actually worse for the UK than a lot of other countries. The Bank reckons only a fifth of this impact is down to trade, with a massive impact coming through the UK’s incredibly exposed financial sector.
The estimates reckon world shocks have slashed UK GDP by 11%, in comparison to the size the economy would have been if pre-crisis growth continued. Just 2% is down to trade, and 9% down to uncertainty and finance.
The UK is a hub of global financial activity, and London is effectively Europe’s banker. When the German economy sneezes, don’t be surprised if the UK catches a cold.