Henry Paulson, the US Treasury Secretary, spoke at length yesterday of the serious problems in the American housing, mortgage and credit markets and the drastic measures that are likely to be required for those markets to return to some form of normality.

Listening to him, it was tempting to swallow Alistair Darling's claims in Wednesday's Budget that we in the UK should count ourselves lucky that we are comparatively well positioned to weather the credit crunch and global economic slowdown.

But a closer look at the parallels between the British and US economies gives a more sobering message. Admittedly the British housing market does not have the same sub-prime problems as the US.

Less than a tenth of mortgage lending in the UK over recent years might be categorised as sub-prime, compared with a quarter in the US. And for now at least, mortgage arrears and repossessions are low in the UK.

But the sub-prime episode was only ever a side-show in the US, the main event being a fundamental downturn in the housing market after a number of years of rapid price gains left the market looking dangerously overvalued. And on this front we can compete very ably.

Over the past decade house prices in the UK have risen by nearly twice as much as those in the US. This has left the ratio of house prices to earnings some 55 per cent above its long-run average, compared with an excess at the peak of 25 per cent in the US.

Accordingly, it is not hard to see prices falling at least as far, if not farther, than those in the US, even allowing for Britain's greater supply constraints.

What's more, the potential impact of a housing downturn on consumer spending and the wider economy is arguably greater in Britain than in the US. Households have borrowed more heavily to fuel our housing boom, with the level of household debt standing at the equivalent of 175 per cent of households' disposable income, compared with 138 per cent in the US. And although the UK household savings rate appears higher than that in the US, when measured comparably, saving is just as low in the UK.

To top it all off, British consumers are unlikely to enjoy the same support from fiscal and monetary policy as their US counterparts. The Bank of England has arguably started to cut interest rates at a relatively earlier stage of the UK's slowdown than did the US Federal Reserve.

But continuing concerns over the inflation outlook mean that interest rates are likely to fall much less quickly. Indeed, US rates could drop as far as 1 per cent by the time ours fall below 5percent. Meanwhile, for all Mr Darling's talk on Wednesday of supporting the economy with fiscal policy, he was forced to raise taxes by some £2 billion a year to avoid breaking his fiscal rules - a world away from the big tax cuts being implemented in the US.

Even hopes that British exporters might benefit from a significant fall in the exchange rate, as their American counterparts have done, now look rather less certain, with the pound rising ominously back above the $2 mark in recent days.

I don't want to sound too gloomy. For now at least the UK economy retains some momentum and, perhaps crucially, the labour market remains in better shape than that in the US, as does the financial system.

And once inflation fears start to ease, the MPC should eventually be able to bring interest rates down sharply, hopefully bringing the pound down with it. But the bottom line is that major downturns in the US economy

have almost always been accompanied, or followed by, similar or worse slowdowns in the UK. It would take a braver man than me to bet that things will be different this time.

— The author is chief European economist at Capital Economics

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