Apparently the language setting is a property and not a program level setting so you have to define it for the document you are creating.
New documents are actually created with a paragraph present by default, and this paragraph is set by default to be US English.
To set your new document and ALL FUTURE NEW DOCUMENTS to UK english by default:
Office 2003 / XP Tools > Language > Set Language … > Have English U.K. highlighted and click ‘Default…’
Office 2007 Review tab > ‘Set Language’ option
A popup will ask you to verify that you would like to change the default setting of the normal paragraph, agree to this and close the language box.
All new documents you create will have UK as the default setting.
Note: Old documents will not be converted to UK language setting and you will need to change the setting again when you go back to edit previously created word documents.