Europe needs swagger

Why UK should fear global commodity slump

The U.K. economy is not immune from the effects of a global decline in commodity prices, business leaders told CNBC Thursday.

John Cridland, Director-General of the Confederation of British Industry (CBI), told CNBC Europe's Squawk Box that the fall in commodity prices, from oil and gold to aluminum and iron ore, does impact the U.K.

"Let's remember we're an island with a 65 million population in a really important global world so we need to think about the global impact (of the fall in commodity prices). These downside risks to the global economy matter for the U.K. economy."

A general view of the blast furnace at the SSI UK steel making site on October 14, 2015 in Redcar, England.
Ian Forsyth | Getty Images

His comments come after several reports of U.K. manufacturing closures amid the slump in global demand for commodities, largely on the back of the slowdown in China's economy.

A lack of demand has caused raw material prices to fall, hitting commodity-dependent economies hard as it makes the extraction and export of such materials unviable.

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For the U.K. specifically, while a drop in the price of commodities such as oil has been a boon to the government as it gives consumers more money to spend elsewhere, the decline in commodity prices has damaged the last remaining vestiges of U.K. manufacturing hard.

Earlier in the week, it was announced that the SSI Redcar steelworks in northern England were to be closed, leading to the loss of 2,200 jobs and the conclusion of 98 years of steel production at the site. Meanwhile, the North Sea oil industry, largely based off the coast of Scotland with many workers living in the city of Aberdeen, is also suffering amid a slump in oil prices which have fallen from a peak of $114 a barrel in June 2014 to currently trade around $50 a barrel. Some analysts believe 10,000 jobs could be at risk in the U.K.'s oil industry as a result.

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"For entrepreneurs in the U.K. economy it's a two-part story. We've seen pain at the Redcar steelworks, we've seen a lot of pain in Aberdeen, but the impact on the mainstreet economy in the U.K. has so far been positive because lower energy costs in a high energy-cost country have benefited people in the short-term," Cridland told CNBC.

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"But the downside risk of a weakening of global demand, that's of concern too."

Carl Weinberg, chief economist and managing director of High Frequency Economics told CNBC that the drop in commodity prices "reflects back on people here in the U.K. in a loss of trade."

"The problem right now in the world isn't that the jobs that are here are being lost. The problem is that we have a drop in world income because of a drop in commodity prices and that's because the world invested too much in commodity infrastructure."

The declines in commodity prices had shaved about two percentage points off world GDP, Weinberg believed.

"That then reflects on Britain because when your trading partners get less money for the stuff they're digging out of the ground, then they buy less stuff from you and that then impacts jobs here in the U.K."

- By CNBC's Holly Ellyatt, follow her on Twitter @HollyEllyatt. Follow us on Twitter: @CNBCWorld