By David Burridge,
Politicians are quick to point out that the economy is growing, commentators keep mentioning austerity and the word recession continues to stick around like a bad headache. But what does it all mean?
With the announcement that the UK economy grew by 0.8% in the first quarter of 2014, the UK has now seen five consecutive periods of positive growth. Recession, it appears, is long gone.
What the above graph demonstrates is the severity of the recession in 2008 and the bumpy road to recovery since. Compared to the growth between 1992 and 2007 growth is slow. However, compared to the negative growth in 2008 an increase of 0.8% is simply wonderful.
So now that the economy is back growing again everything is hunky dory, right? Wrong.
Whilst yes the economy is recovering, unemployment is falling and confidence is higher; the UK’s national (or total) debt stands at an enormous £1,268 billion or £1,268,000,000,000 at March 2014. That’s approximately £19,000 per person.
National debt is falling though because of austerity? Wrong again.
UK national debt is in fact still rising, at the moment the Government still runs an annual deficit. As well as the total pile of debt, much like an individual, in any given year the UK government will either spend more than it saves (deficit) or save more than it spends (surplus) and either add to the total debt or pay some of it back.
This year’s deficit stands at roughly £80 billion pounds. This means that this year alone a further £80,000,000,000 will be added to the UK’s total debt.
Light at the end of the tunnel
If you read only the first half of this article, you could be forgiven for thinking we are all doomed to bankruptcy, this is not, you will be glad to hear, the case. The annual deficit is now falling and the UK is projected to run a budget surplus in 2019 as the graph below shows.
The reason for the current deficit of £80 billion is that the austerity measures the government has been introducing simply haven’t come into force yet in a lot of cases. This is due to change though over the coming months and years and we will see the annual deficit begin to reduce.
In 2019 the annual surplus will will allow us to start to pay off our huge pile of national (or total) debt. The projected surplus of roughly £30 billion would enable us to pay off 2.36% of the current total debt. It’s a start.
Featured image used under Creative Commons and can be found here: http://www.fotopedia.com/items/flickr-3855242873