Housing market: Is credit crunch mark II on the way?

"Growth is weak but exports are holding up, our credit rating is secure and, therefore, the interest on our debt is relatively low. Unemployment has not been as severe as some feared." "UK ministers will be desperate to minimise the impact on British taxpayers of any further bail-outs for the misbehaving nations, but we cannot expect to emerge totally unscathed."

Ian Kernohan, economist at Royal London Asset Management, says a second Lehman-type event is a key risk and would lead to severe stress in the money markets.  However, he says we are still some way off from a "meltdown scenario".

"The ECB must play its role in eliminating contagion risk to Spain and Italy, where the issue is still more about liquidity rather than solvency," he says.

"A considerable burden also rests on governments to tackle the core problem of the sovereign debt crisis and introduce policies aimed at stabilising public debt levels."

"However, any durable solution to the problem may lie well beyond Europe and the operations of the EFSF. This is a crisis which should be sounding alarm bells in Washington, Beijing and the OPEC states."

However, British Bankers' Association chief executive Angela Knight is optimistic that UK banks can weather the euro crisis. "What Britain has done very publicly is require its banks to recapitalise," she said. "It made banks hold more liquid cash in a way some other countries have not."

One possible good side effect to any new crisis is that interest rates could stay low for even longer.

The base rate has now been at the record low of 0.5% for 30 months. Economists now forecast the first hike may come as late as July 2012. After this, the base rate is expected to rise slowly and gradually, as the Bank of England fears damaging the weak recovery.

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