By: Dr. Mike Campbell

Preliminary figures released by the Office for National Statistics in the UK reveal that the world’s seventh largest economy contracted in the fourth quarter of 2011. The Q4 GDP figure came in at -0.2%, but taken as a whole, the UK economy grew at 0.9% for the full year which was broadly in line with predictions. The UK GDP is worth approximately $2.2 trillion. If Q1 2012 economic activity also shows a contraction then the UK will have entered a recession, but most analysts are predicting that should this happen, it is likely to be mild and short-lived.

The usual suspects have been blamed for the UK slowdown – the effect of austerity measures; declining global demand; the European sovereign debt crisis and lost productivity due to industrial action protesting against (largely) austerity-inspired pension reforms.

UK Debt Updates

There was mixed news on the public debt front for the UK. The debt has risen to a record figure of £1 trillion, 64.2% of the nation’s GDP. However, the monthly public sector borrowing figure for December was down by £2.2 billion to £13.7 billion. This means that the government is still on-track to meet its spending target of £127 billion for the financial year 2011-12. Increased revenues from a bank levy and from last January’s increase in VAT have helped to swell the exchequer’s coffers. Government spending has also declined by 0.9% as austerity measures begin to take effect. It has been a decade since the UK was able to pay down its debt burden through a surplus when £243 million was loped of the debt mountain.

As with many leading economies, the UK debt burden is unsustainable and has become a political issue. Servicing an interest rate of just 1% on a trillion Pounds would cost the nation a whopping £10 billion per annum – roughly 10% of the National Health Service budget. If the best the nation could do is to chip £243 million off the debt in a year, the debt would continue to grow at the rate of £9.75 billion per year even if no further monies were to be borrowed.