The UK’s economy could benefit from the Chinese slowdown due to sustained low interest rates and cheaper prices but wider growth could be squeezed, according to new research.
The report from Oxford Economics found that a "hard landing" for the world's second largest economy would "offer both drawbacks and gains to the UK."
It said a sharp slowdown in China would pull down Britain's growth from an average of around 2.5% a year, from 2015 to 2017, to 2%, meaning "a fairly unspectacular expansion would become a distinctly insipid one".
But the depreciation in the yuan making Chinese imports cheaper, coupled with downwards pressure on world commodity prices as a result of weaker Chinese demand, would push down on UK inflation - currently hovering around zero.
This would make an interest rate hike by the Bank of England's Monetary Policy Committee (MPC) less likely.
Borrowers would stand to gain, though this would spell more misery for savers already hammered by more than six years of the Bank rate being at a historic low of 0.5%.
Martin Beck, lead UK economist at Oxford Economics, said: "As a key player in the global economy and an increasingly important market for UK exports, a prolonged slowdown in the Chinese economy would hit the UK's growth prospects. But the risk of a Chinese 'hard-landing' could also deliver benefits for the domestic economy, via cheaper commodities and by staying the MPC's hand in raising interest rates."
The research found that "a structural hit to Chinese growth would be a net negative to the UK but less so than for many other economies."
It said under a China slowdown scenario, UK growth would be 1.5% weaker in 2017 than presently forecast, with a similar effect on the US and eurozone. Other countries would be harder hit, with a 5% drag on Chile, and India and Japan seeing growth pulled down by more than 3%.
The report said the UK would see faltering exports both to China and the trading partners exposed to it.
