Europe Economy

UK off 'Front Line' of Economies in Danger: Gieve

The UK, with its high level of public debt, low growth, closeness to the US and reliance on financial services, was once viewed as one of the European economies most in danger of a double-dip recession.

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According to one former senior British policy-maker, the UK is now off the critical list in Europe as other large European economies such as Italy move into the spotlight.

"The pre-emptive measures that the government took last year have taken us off the front line," Sir John Gieve, former deputy governor of the Bank of England, told CNBC Monday.

"A year ago we were seen as high on the list (of economies in danger)."

Gieve, who stepped down from the BoE in 2009 after the last recession, added that the UK was not out of the woods yet.

"The bigger issue is that growth is diminishing and that we are facing years of stagnation. That's feeding the worries about sovereign debt," he said.

"The measures that people are taking will of course compound the worries about growth."

The UK economy grew by just 0.2 percent in the second quarter of 2011, less than expected, and slower than the 0.5 percent reported in the first quarter, according to the government-run Office for National Statistics.

"We are in a moment where people are moving away from thinking that we are going to recover to normal and becoming accustomed to the idea of a period of lower growth," Gieve added.

"The question will come: should we cut harder or should we just accept that if growth is lower we will have a higher debt?"

Some of the UK's European neighbours, who are part of the region's euro zone, seem to be in a worse situation.

Over the weekend, the European Central Bank said that it will start buying up Spanish and Italian debt after both countries looked in danger of being pulled deeper into the quicksand of the euro zone debt crisis. The markets will continue to watch every move by the ECB this week, Philippe Waechter, head of economic research at Natixis Asset Management, told CNBC Monday.

"We are still in a worrying situation in Europe of very slow growth, together with problems with public finance and how to solve the situation.

"We need a trade off between what's done by fiscal policy and more accommodative monetary policy to avoid weak growth in Europe."

"To solve this crisis requires national governments to enact reforms; to control the fiscal and debt position and raise competitiveness," Howard Archer, chief European & UK economist at IHS Global Insight, wrote in a research note.

"This is as true for Madrid and Rome as it is for Washington D.C. This is well understood in Berlin and Frankfurt but this ‘home work’ is only slowly being understood and undertaken elsewhere."