The UK’s sovereign debt stands at 89% of GDP and rising.
Well, investors love UK debt. This means the government can borrow cheaply. That debt can then be used to stimulate growth and be repaid by increased tax revenue.
We know the government is under pressure to end spending cuts. So, if borrowing ceased, there would be a big reduction in public services and a subsequent drop in living standards.
Be warned: getting into lots of debt is risky.
Think Greece. 2010. A weak economy naked to the 2007 crisis. An inability to repay a large debt pile. The markets like a Lannister: confidence nosedived. A decade long subscription to severe austerity and a dominoes effect later (remember the European Debt Crisis?), and Greece may be allowed to borrow at reasonable rates again in 2030.
Also, if you’ve got to make major debt repayments, it will enlarge any deficit created by a crisis. This was the rationale behind the 2010 austerity measures.
So, should we be worried?
For now, no.
The UK’s growth is small. It means we are on the right track but we need to see stronger, long term growth to safeguard the recovery. Additionally, the deficit has been reduced significantly and Brexit anxiety would be amplified with a sudden national debt reduction plan.
Now, look at America, with a similarly high 73.8%. If America goes bust, we join them.
So the real question is: should we be worried about America’s debt?