Problems in the Eurozone are likely to sedate economic growth in the UK

The Momentum UK Team 01 June 2012

Forecasts for UK economic growth have drop from 0.6pc to 0.1pc as warnings suggest that it will continue to ‘bump along at the bottom’. The British Chamber of Commerce’s (BCC) study calls for greater provisions to be taken in order to soften the potential blows of Eurozone crisis.

According to their Quarterly Economic Forecast report, the BCC who represent 100,000 businesses, estimated a 0.5pc decrease in economic growth this year, proposing that the issues on the Eurozone are likely to cause problems for businesses in the UK unless the government takes action.

The ‘Grexit’

The situation between Greece and the EU has been described as ‘a game of financial chicken’ by Schroder, global asset management company. Keith Wade, Cheif Economist of Schroder said:

“With both sides talking tough ahead of the general election on June 17th, we do not see a happy outcome and have brought forward a Greek departure from the Euro to the third quarter of this year as the EU and ECB cut off funding."

Although Greece managed to pay off half of their debts, the effect of five years of recession have had financially devastating consequences. Burdened by spending cuts and unable to devalue their currency, the likelihood of Greece exitting the Eurozone is growing rapidly.

The after effect

The looming possibility of Greece’s exit has led to friction within the Eurozone as viewpoints are divided and concerns are rising about the effect that this could have on the EU.

Nick Clegg has been expressed beliefs that Greece leaving the EU will not solve Europe’s financial problems. He suggested that such an outcome is likely to have serious effects on UK and the rest of the Eurozone. Clegg stated:

"It is my view that no-one should labour under the false hope that somehow that Greece leaving the eurozone can provide instant relief to the problems we face.

"Monetary union in the eurozone is founded on the principle that it was an irreversible step. If any member country chose to leave it would have a very unpredictable knock-on effect, not merely on members of the eurozone but on Europe as a whole, the UK and the global economy."

Keith Wade said:

"The weakness of the Eurozone hits activity elsewhere through trade and heightened risk aversion in the financial sector.”

Call for action

On the 17th June 2012, Greece will hold a second election of which it is believed will play a significant part in the final decision regarding Greece’s future in the EU.

However many parties are already making suggestions for action which should be taken in preparation. The British Chamber of Commerce’s Director General has called upon the government to take more ‘enterprise-friendly’ steps in order to protect small businesses in the UK from the possible problems ahead:

“We need growth and we need it now. If the government works together with the private sector to create the right environment over the long term, we'll be able to prove once and for all that bold businesses can propel us forward out of stagnation and firmly on the road to recovery."

Chancellor George Osbourne has expressed that preparations are already underway during this ‘critical’ time for the EU. He said:

“The British government is doing contingency planning for all potential outcomes - it's our responsibility to ensure the best while preparing for something worse," said Osborne.

"The eurozone countries need to stand behind its currency or face up to the prospect of Greek exit, with all the risks that could involve."

According to a recent survey conducted in Greece by GPO, over 80pc of respondants felt that Greece should fight to stay in the Eurozone ‘at any cost’.