How high is UK debt?

Leading credit ratings agencies have expressed concern about the amount of debt in the UK, which as a result has had the media screaming that the UK´s debt could be spiralling out of control. Regarding some headlines, you could be forgiven for thinking the UK is on the verge of a financial breakdown.

But are the UK´s debt levels really as bad as we all imagine, when compared with other leading developed economies or are we all guilty of believing the hype and worrying too much?

The UK has the lowest level of debt out of all the leading developed economies of the world, and its 68.7% of gross domestic product (GDP) compares favourably with the US (84.8%), Italy (115.8%) and Japan (218.6%).

When looking at the world´s debt, it seems unfair to pick out the UK, but the reason most of us do this is because the debt has deteriorated so quickly, as, in 2007, before the crisis, the UK´s debt stood at just 44.1% of GDP.

It has also been anticipated that, considering the government´s support for the financial sector, debt levels could hit 100% GDP by 2013.

Repaying high levels of debt could force countries to cut spending and raise taxes, with potentially serious implications for residents of the country. It is commonly believed however that UK debt levels are not excessively high, and although the economists are right to be worried, the amount of debt needs to be kept in context.

The UK Government may have promised to halve its annual budget deficit within the next four years, but this means the overall level of debt is still rising, and even more worrying to investors is the fact that the government spending will not be curtailed in the short term, as the Treasury is desperate to stimulate the economy during the recession. This is less of an issue for other major economies which are now growing again after the downturn.

But while the UK was still deep in recession during the first 9 months of 2009, figures for the final three months of the year are expected to show a return to growth.
 
Although there is little reason for investors to panic, large debts are bad for any country, as they inhibit Government spending and economic growth.  As statistics show, however, all major developed economies suffer from high debts. The UK is, for now at least, no worse off than the rest of them.