UK could be hit by ‘contagion’ derailing China’s £2.4trn banking system, says Harvey-Jones | World | News


Britain is far from immune to the “contagion” currently threatening to destroy China’s £2.4trillion banking system, Sir John Harvey-Jones has warned.

The former ICI chairman and star of the BBC show Troubleshooter issued his stark warning with , the Chinese real estate giant, in serious danger of going bust.

And, in an op-ed for during which he warned of the risk of crippling deflation, he said there could be no complacency among UK financiers – with the entire UK economy potentially in the firing line.

Sir John explained: “Latest figures show Chinese consumer prices falling 0.3 percent in the year to July. Factory prices fell 4.4 percent.

“The impact will not be restricted to .”

If Chinese companies could not get a decent price for their goods and services at home, they would look to “dump” them in key European and US export markets, Sir John explained.

He continued: “Cheaper food? Cheaper cars? Cheaper everything stamped “Made in China”? What’s not to like?

“First, it’s not going to be an orderly retreat.

“The potential collapse of China’s largest real estate developer Country Garden has left the world economy on the brink.

“Unless Beijing steps in, contagion may destroy the Chinese shadow banking system.

“It’s worth $3trillion [£2.4trillion], which is roughly the size of the UK economy.”

Mike Wilson, chief investment officer at Morgan Stanley, fears the US may follow China into recession, Sir John pointed out.

And he offered a blunt message to Bank of England governor Andrew Bailey, saying: “Despite the looming danger the BoE looks set to carry on fighting yesterday’s problems rather than tomorrow’s.

“We’ll all pay a high price if it doesn’t wake up and halt the rate hikes now.”

UK stock markets slumped on Tuesday as worries about the Chinese economy weighed heavy and new wage UK data stoked fears over future interest rate rises.

London’s FTSE 100 plunged by around 1.7 percent during the day, reaching lows of more than a month as all but a handful stocks on the blue-chip index saw losses.

Miners and finance giants acted as the biggest drag on the index, which closed 117.51 points lower, or 1.57 percent, at 7,389.64.

New official data showed that regular wages in the UK grew at the fastest rate since reliable records began, reaching 7.8 percent in the three months to June, compared to a year earlier.

Even though regular wages, which takes into account the impact of inflation, stagnated, the data could still put pressure on the Bank of England’s policymakers who are looking for signs that inflationary pressures are easing.

Edward Moya, senior market analyst for Oanda, said: “Record wage growth will keep the pressure on the Bank of England to deliver more tightening.

“The economy still has a tight labour market as companies need to pay their employees more money.

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