Mizuho Securities’ global macro strategy head has suggested that a bailout from the IMF may be in Britain’s future. A former chancellor of Britain warned that Britain may be in a prolonged and severe recession. He said that it was the worst since 1990, and that it could be worse than any time before that.
In an interview with Bloomberg Television Monday, Peter Chatwell, Head of Global Macro Strategies at Mizuho Securities shared His outlook for the U.K. Economy.
He said that Liz Truss has pledged a fiscal policy that the British government can’t afford. He doesn’t think the Bank of England will be able to inflate inflation to 2% anytime soon.
Britain could need bailouts from the IMF
The strategist at Mizuho said that he was thinking about two possible crises and that this reminded him of. He noted that the European Exchange Rate Mechanism was 1992’s one.
Then I think about the possibility that an IMF bailout could be possible, as in 1976.
Truss was a former British foreign secretary and was succeeded by Boris Johnson. On Tuesday, Queen Elizabeth made Truss the new U.K. prime Minister, beating Rishi Sunak, former Chancellor of Exchequer.
As the pound fell to a new record low in September 1976, James Callaghan’s Labor government requested a loan of $3.9 billion from the IMF. This was the largest ever request by the IMF.
IMF bailouts are not unusual says Deutsche Bank
Chatwell wasn’t the only one who saw the possibility of an IMF rescue in the U.K. future. Shreyas, Deutsche Bank’s strategist, said Monday that while a balance of payments funding crisis might sound extreme, it is not unusual,” further explaining:
In the middle 1970s, the U.K. had to take out an IMF loan due to aggressive fiscal spending, severe energy shock and a slide of sterling.
The strategist stated that “Today, the U.K. retains some key lines to defend against sudden stops, but we worry about the rising risks,”
Ken Clarke, former Conservative Chancellor of Exchequer, stated Tuesday that “We are clearly likely to enter an extended and possibly quite severe recession.” It is certain to be the worst recession since 1990, and possibly the worst since the beginning of the 20th century.
