By: Dr. Mike Campbell

The UK has largely avoided the worst direct consequences of the sovereign debt crisis by being outside of the Eurozone. UK banks are exposed to Greek sovereign debt, but the commitment is relatively small. However, like the rest of the world’s major democratic economies, Britain has its own debt mountain. The UK government has put in place a number of austerity measures which are designed to reduce the nation’s debt burden. However, reduced public spending has the consequence of putting the brakes on an economy which was already expanding at a glacial pace.

The UK is also far from immune to the woes afflicting the global economy which is also slowing markedly. This fact has been acknowledged by the International Monetary Fund (IMF) which characterised the current situation by saying that the global economy is in a “dangerous new phase”.

The IMF has downgraded its assessment of the prospects for growth in the UK economy for the full year from 1.5 to 1.1% (the previous assessment was just made in June). The IMF has also trimmed its projection for UK growth next year from a bullish (in the current circumstances) 2.3% to 1.6%. Some independent analysts have expressed the opinion that these figures are on the optimistic side for this year, but and are projecting UK growth will exceed IMF forecasts next year by about 0.4%, coming in at 2%.

The IMF thinks that Germany, France, the USA and Canada will all enjoy better growth than the UK this year, but clearly it is difficult to make accurate predictions in the current economic climate. In this vein, the IMF prognostication that the UK growth figures for 2012 will exceed those for Germant and France must be taken with a pinch of salt.