The UK's Debt

Britain's Economy

The economy of the United Kingdom is the seventh-largest national economy in the world and the third-largest in Europe measured by nominal GDP (after Germany and France) .

The UK entered its worst recession since World War II in 2008.





Why do we use GDP?

When national debt is shown in pounds sterling the National Debt looks huge. 

But by comparing national debt as a percent of gross domestic product (GDP) in, you get a look at government debt compared to the size of the economy at the time.

The UK National Debt

Every year the Government spends more money than it can tax (a budget deficit.), so we fill this gap by selling bonds to investors at home and abroad.

These bonds - known as gilts - have to be repaid in full, with interest. Added together, our unpaid loans make up the UK's national debt.



The History of UK national Debt

The National Debt began when William III engaged a syndicate of City merchants to market an issue of government debt.


England needed to rebuild herself as a global power after the 1690 defeat in the Battle of Beachy Head. And to be a global power, England had to build a powerful navy.

With no public finance available, and the credit rating of William III.'s government was so low that it was impossible for it to borrow the £1,200,000 that the government wanted.

To encourage City merchants to lend money to the Government,  long-term banking privileges including the issue of notes were offered to the merchants. The merchants came together and called themselves the Governor and Company of the Bank of England.

The Bank of England raised the £1.2m was raised in 12 days...

The National Debt began the 20th century at about 30 percent of GDP. It jerked above 150 percent in World War I and stayed high. Debt breached 200 percent during World War II. Debt declined to 50 percent of GDP by the 1970s and dipped to 25 percent by 1990.

The National Debt began a rapid increase in the aftermath of the worldwide financial crisis of 2008.







Whats the Risk?

The real risk from government debt is interest payments on debts. Experts say that when interest payments reach about 12% of GDP then a government will likely default on its debt.

The peak period for government interest payments was in the 1920s and 1930s right after World War I.


The Future

According to Government estimates the UK's national debt will rise to £1,214 Billion in 2015.  In 2011, the UK's national debt is £909.2 Billion.







Graphs from http://www.ukpublicspending.co.uk