China slowdown won't hit UK, but might keep MPC on sidelines, Citi says
Even a “major” slowdown in China would only have a modest effect on economic growth in the UK, although it might be enough to keep the Bank of England ‘on hold’ next year, one of the world’s largest brokers said.
Should such an occurrence take place it could perhaps lead to a mid-cycle slowdown and reinforce the trend to low-flation, analysts at Citi said in a research note.
However, while it might keep the Monetary Policy on hold in 2016 it would probably not trigger major weakness. The historical correlation between rate of economic growth in both countries is only 18% - “statistically not significantly different from zero”.
Britain’s growth has historically been more closely knit to advanced economies rather emerging ones, while the direct trade links are “quite low”. As of 2014, goods exports to China accounted for just 4.8% of the total, equivalent to just 0.8% of gross domestic product or £14.1bn – three times less than for Germany.
Sales of goods to emerging markets reached only 3.3% of UK GDP in 2014, the brokerage added, citing data from the IMF.
Exports of services to China meanwhile amounted to just £4.1bn last year.
Sales of good and services to Ireland, on the other hand, reached £23.8bn in 2013.
China has not been a major source of capital inflows either, although some London-based lenders do have a relatively high exposure to China and Hong Kong.
Meanwhile, consumers in the UK in fact stand to gain from lower commodity prices.
“The UK would be far more vulnerable if growth worries spread from China and UK credit availability worsens,” Citi said.