Believing in life after debt.

(From Financial Director)

Byline: Dennis Turner.

Nothing has happened since the Budget to undermine the confidence the Chancellor expressed about the UK's short-term prospects. Inflation remains low, unemployment keeps falling and GDP growth has been accelerating since the third quarter of last year. Even manufacturing seems to have turned the corner, with output edging up throughout 2003. Yet there are concerns, and they have been expressed not only by the press but by the Monetary Policy Committee and the Financial Services Authority.

The UK economy has bucked the global trend of slowdown and recession.

Consumers were persuaded by the sweetener of lower interest rates, which fell from 6% at the start of 2001 to a 55-year low of 3.5% last summer - a drop of more than 40% in interest charges. With this sort of incentive, together with steady growth in earnings, spending rose, borrowing increased and savings dipped.

Borrowing certainly bought the UK economy time - the breathing space it needed until the global economy recovered. But it has come at a price.

Total consumer debt at the end of last year totalled GBP936bn, split between unsecured (credit cards, loans, overdrafts) of GBP170bn and secured (mostly mortgages) of GBP766bn. With a massive 82% share of the total, mortgages are the dominant element.