The government has moved quickly to allay fears of a recession following a plunge in the financial markets with Business Secretary Vince Cable calling the UK a “safe harbour”.
The economic turmoil has led to increased anxiety throughout the eurozone, with Jose Manuel Barroso, President of the European Commission, warning that the crisis is no longer contained to the periphery, following the €440bn bailouts of Greece, Portugal and Ireland.
Unstable trading saw both the UK's FTSE 100 and the German Dax fall by four per cent, however, Cable moved to distance the UK from the financial turbulence, suggesting that Britain is in a far better position than other western countries to ride-out the downturn.
He told the BBC: "We're not at the centre of this crisis. We are of course affected by it but Britain at present is seen as a safe harbour. There is no question that we need to revisit our public finance assumptions. There is built-in flexibility into the government's policy. There is certainly no need to revisit the public finance policy that we've got."
Speaking to The Huffington Post, senior UK analyst Neil Prothero said that Cable was trying to pointing out the difference between the UK and European economies, emphasising that the UK has independence on its monetary policy.
"From a basic fulfilling of debt point of view, creditors need to be paid and central banks, such as the Bank of England, have the ability to do that," says Prothero. "European banks are more constricted. This makes the UK is a safer bet for investors, but the growth prospects are low, and so demand is still weak."
Foreign Secretary William Hague also looked to calm nerves, insisting that Britain was not directly involved. "No country is immune to these problems,” Hague told the BBC, “…but we in Britain are not in the firing line because of the difficult decisions that we’ve taken over the last year to bring spending under control, to bring down borrowing, to control debt, Britain is able to borrow at low rates of interest because the financial markets have confidence in what we are doing.”
However, Prothero believes the UK banks are exposed, particularly to Ireland. "If events in the eurozone deteriorate further then the banks could see bigger losses."
The publication of better-than-expected jobs data in the United States earlier today offered some stability to the markets, however the respite may only be temporary, with Alastair Darling demanding greater action from the eurozone leaders. Speaking on the World at One, the former Labour chancellor called for a substantial intervention “to stop collapses spreading from one country to another. If you don't get growth, you'll never get the debt down. If we're not careful we're going to go back to where we were three years ago.”
Shadow Treasury Secretary Angela Eagle also warned of the dire consequences of inaction, telling the BBC that the financial crisis had "entered a new and dangerous phase".
"We need our political leaders to get a grip and show some leaderships and give confidence back to the market in these very, very uncertain times," she said.
However, Hague insists that Britain’s role in setting eurozone policy does not stretch beyond its involvement in the International Monetary Fund and the extension of a bilateral loan to Ireland, emphasising that it is an “individual countries' responsibility to sort out their own affairs.”
Speaking to The Huffington Post, Kevin Dunning, European Editor for the Economist Intelligence Unit, said that the UK was in a much healthier position than its eurozone counterparts to endure the current market fluctuations.
“The one advantage the UK has over Italy or Spain is that they've kept their monetary policy,” says Dunning. “If we had another recession then the Bank of England is independent and doesn't rely on other countries to make policy. With Italy and Spain they've given up their independence ... and the European Central Bank is not willing to help them. It's pushing up interest rates and its intolerant of inflation.”
“Today’s market drop is a reaction to the realisation that policy makers don't have many options left, on both sides of the Atlantic. At the moment having more press conferences seems to be the policy makers' only response... they don't seem to have a better plan. It's this lack of a plan that's affecting the markets.”