The American Civil War (1861–1865) severely disrupted the supply of cotton from the Southern United States to Britain, which was a key supplier to the British textile industry. This disruption led to a shortage and panic in Britain's cotton circles.
Simultaneously, due to this shortage, Britain turned to India to meet its cotton demands. Thus, the demand for Indian cotton surged. The Reason explains why the panic occurred in Britain, making it the correct explanation for the Assertion.