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This paper develops a two-country macro-finance model to study how the UK’s economy is affected by the US spillovers and the common factors. We find supportive empirical evidence of the real and price spillovers from the US to the UK economy even after the common factors are taken into account. We extract the latent com-mon factors from the macroeconomic and bond data of both the US and UK. The empirical results show that these latent common factors are important drive behind the synchronized UK and US business cycle as well as the comovement of the bond yields of the US and UK financial markets. JEL Classification: C12 E43 F41 G1