Mizuho Securities’ head of global macro strategies has warned
that an IMF bailout may be in the U.K.’s future. Moreover, a former
chancellor of the exchequer cautioned that Britain is entering a long
and severe recession, emphasizing that it’s “the worst since 1990 and it
may be the worst since before that.”
Strategist Discusses Possibility of IMF Bailout for the UK
Peter Chatwell, head of global macro strategies at Mizuho Securities, shared his outlook for the U.K. economy in an interview on Bloomberg Television Monday.
He explained that Britain’s new prime minister, Liz Truss,
has promised fiscal policy that the British government cannot afford.
He also does not expect the Bank of England to be able to get inflation
anywhere near its 2% mandate anytime soon.
“I’m thinking 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’m thinking about the possibility of an IMF bailout, like in 1976.
Truss, a former British foreign minister, succeeded
Boris Johnson and was appointed the new U.K. prime minister by Queen
Elizabeth on Tuesday, beating former Chancellor of the Exchequer Ruchi
Sanuk.
In September 1976, as the pound hit 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 that time.
Chatwell was not the only one seeing the possibility of an IMF
bailout in the U.K.’s future. Deutsche Bank strategist Shreyas Gopal
said Monday that “A balance of payments funding crisis may sound
extreme, but it is not unprecedented,” elaborating:
A combination of aggressive fiscal spending, severe
energy shock, and a slide in sterling ultimately resulted in the U.K.
having recourse to an IMF loan in the mid 1970s.
“Today, the U.K. does retain some key lines of defense against a
sudden stop, but we worry that the risks are rising nevertheless,” the
strategist detailed.
Former Conservative Chancellor of the Exchequer Ken Clarke said
Tuesday: “We are plainly likely to enter a long and perhaps quite severe
recession. Certainly the worst since 1990 and it may be the worst since
before that.”
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