IMF bailout could be on the cards for the UK

The head of macroeconomic strategies at Mizuho Securities warned that an IMF bailout could be on the cards for the UK. Additionally, a former Chancellor of the Exchequer warned that Britain was entering a long and severe recession, stressing that it was “the worst since 1990 and maybe even the worst since before that“.

Analyst hints at possible IMF bailout for UK

Peter Chatwell, head of global macro strategies at Mizuho Securities, shared his outlook for the UK economy during an interview on Bloomberg Television on Monday.

He explained that the new British Prime Minister, Liz Truss, has promised a tax policy that the British government cannot afford. Nor does he expect the Bank of England to be able to bring inflation closer to its 2% target in the near future.

I think of two potential crises that this reminds me of“, said the Mizuho strategist. Noting that one of them is the European exchange rate mechanism in 1992, he opined:

And then I think of the possibility of an IMF bailout, like in 1976.

Liz Truss, Britain’s former foreign secretary, took over from Boris Johnson and was named Britain’s new prime minister by Queen Elizabeth on Tuesday, beating former Chancellor of the Exchequer Ruchi Sanuk.

In September 1976, when the pound was at an all-time high, the Labor government of James Callaghan asked the IMF for a loan of $3.9 billion, the largest amount ever requested from the IMF at that time.

Peter Chatwell is not alone in considering the possibility of an IMF bailout in the UK’s future. Deutsche Bank strategist Shreyas Gopal said on Monday that “a balance of payments funding crisis may seem extreme, but it is not unprecedented”:

The combination of aggressive tax spending, a severe energy shock and a falling pound finally led the UK to resort to an IMF loan in the mid-1970s.

Today the UK retains some key lines of defense against a sudden shutdown, but we fear the risks are growing nonetheless“, detailed the analyst.

Former Conservative Chancellor of the Exchequer Ken Clarke said on Tuesday: “We are clearly at risk of entering a long and possibly quite severe recession. Definitely the worst since 1990 and maybe even the worst since before that“.

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