The head of global macro strategy at Mizuho Securities warns of a possible IMF bailout in the UK’s future. In addition, a former finance minister warns that the UK is entering a long and severe recession, stressing that it is “the worst since 1990 and possibly the worst before that.”
Strategist Discusses Possible IMF Bailout for UK
Peter Chatwell, head of global macro strategy at Mizuho Securities, in aBloomberg Television interview on Mondayon the outlook for the UK economy. He said.
He explained that the new British Prime Minister, Liz Truss, has promised fiscal policies that the British government cannot afford. He also does not believe that the Bank of England will be able to bring inflation close to its 2% mandate anytime soon.
“I think of two potential crises this reminds me of,” said the Mizuho strategist. He noted that one of them was the 1992 European exchange rate mechanism, and opined.
And he also thinks about the possibility of an IMF bailout like in 1976.
Former British foreign minister Truss succeeded Boris Johnson and was appointed by Queen Elizabeth on Tuesday as Britain’s new prime minister over former finance minister Ruchi Sanouk.
In September 1976, with the pound at an all-time low, James Callaghan’s Labor government requested a $3.9 billion loan from the IMF, the highest amount requested by the IMF at the time.
Chatwell is not the only one who sees the possibility of an IMF bailout in Britain’s future. Deutsche Bank strategist Shreyas Gopal elaborated on Monday, saying, “A balance of payments funding crisis may sound extreme, but it is not without precedent.”
A combination of aggressive fiscal spending, severe energy shocks, and a falling pound ultimately forced the UK to resort to IMF loans in the mid-1970s.
“Today, the UK holds some important lines of defense against a sudden stop, but we are still concerned about the growing risks,” the strategist elaborated.
Former Conservative finance minister Ken Clarke said on Tuesday. ‘We’re in for a long, hard recession if this continues. It’s certainly the worst since 1990 and maybe the worst before that.
Image credit: Shutterstock, Pixabay, Wiki Commons