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Mizuho Securities’ head of global macro strategies has warned that an IMF bailout could be in Britain’s future. Moreover, a former Chancellor of the Exchequer warned that the UK is heading into a long and severe recession, stressing that it is “the worst since 1990 and it could be the worst since before that”.
Peter Chatwell, head of global macro strategies at Mizuho Securities, shared his outlook for the UK economy in an interview on Bloomberg Television on Monday.
He explained that Britain’s new Prime Minister, Liz Truss, has promised fiscal policies that the British government cannot afford. Nor does he expect the Bank of England to be able to get inflation anywhere near its 2% mandate anytime soon.
“I think of two potential crises that this reminds me of,” the Mizuho strategist said. Noting that one of them is the European Exchange Rate Mechanism in 1992, he opined:
And then I think about the possibility of an IMF rescue package, like in 1976.
Truss, a former British foreign secretary, succeeded Boris Johnson and was named Britain’s new prime minister by Queen Elizabeth on Tuesday, beating former finance minister Rishi Sunak.
In September 1976, with the pound hitting a record low, James Callaghan’s Labor government asked the IMF for a $3.9 billion loan, which was the largest amount ever requested from the IMF at the time.
Chatwell was not the only one who saw the possibility of an IMF bailout in Britain’s future. Deutsche Bank strategist Shreyas Gopal said on Monday that “A balance of payments crisis may sound extreme, but it is not unprecedented,” elaborating:
A combination of aggressive fiscal spending, severe energy shocks and a fall in the British pound eventually resulted in Britain taking on an IMF loan in the mid-1970s.
“Today, Britain retains some important lines of defense against a sudden stop, but we worry that the risk is increasing nonetheless,” the strategist said.
Former Conservative Chancellor of the Exchequer Ken Clarke said on Tuesday: “We are obviously likely to go into a long and perhaps quite severe recession. Certainly the worst since 1990, and it may be the worst since before that.”
Do you think the UK will need an IMF bailout? Let us know in the comments section below.
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