As an island, the United Kingdom stands apart from the rest of Europe physically, and there's no question that over the course of time, its leaders have struggled to maintain this distinction economically as well, opting not to embrace the common currency, and instead to maintain the almighty Pound, once thought to be among the strongest global currencies.
Repeatedly plagued with problems (and with no resolutions on the horizon), the Euro is now garnering much international attention, as analysts wonder where the currency is headed, or whether adopting a unified currency was perhaps one of the most grievous mistakes of our generation. Proponents of the Pound have taken the Euro's failings as a validation of the detachment between the UK and the rest of Europe. But with such close ties between Britain and her neighbors, one can't help but wonder if the UK can truly be immune to the crises plaguing the Eurozone.
Like any infectious disease that can spread globally in mere days, fears of economic crisis are highly contagious, and it would be na?¯ve to think that such contagion would be limited to the Eurozone. In fact, one could argue (as I am about to do), that the most natural place for such fears to expand first are to the areas surrounding the troubled region, making the UK a prime candidate to receive the debt crisis.
There's no doubt that if the Euro continues to fail, it will erode demand for British goods, which will have a direct impact on the country's economy. Likewise, the proposed Financial Transaction Tax which would impose fees on all financial transactions in Europe would increase costs for banking in the UK (as well as the rest of Europe), which would likely cause businesses to shift their banking to areas outside of the UK.
With global stock markets taking a significant hit in Q3, it's no surprise that Fitch ratings agency has downgraded all of its projections for the coming quarter. In the Eurozone specifically, forecasts now show near-zero quarterly growth expectations, a prediction will likely have a direct impact on the UK as well.
Although only time will tell exactly how deeply the UK economy will be affected by European debt crisis, I think it's safe to say that there's no way the Pound will be entirely immune from troubles, and anyone trading the GBP should keep a close eye on the trends in the weeks ahead.