Mizuho Securities’ head of global macro strategies warned that an IMF bailout could be in the UK’s future. What’s more, the former Chancellor of the Exchequer has warned that Britain is heading into a long and deep recession, “the worst since 1990 and possibly worse than before”.
The strategist discusses the possibility of an IMF bailout for the UK.
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.
The new British Prime Minister, Liz Truss, has explained that the British government has promised an unsustainable fiscal policy. Furthermore, the Bank of England does not expect to get inflation anywhere near 2% anytime soon.
“I can think of two possible crises that this reminds me of,” said the Mizuho strategist. Noting that one of them was the European Exchange Rate Mechanism in 1992:
And then I’m thinking of the possibility of a 1976 IMF bailout.
Former British Foreign Secretary Trudeau was appointed the new Prime Minister of the United Kingdom by Queen Elizabeth on Tuesday, replacing Boris Johnson; He defeated former foreign minister Ruchi Sanuk.
When the pound hit rock bottom in September 1976, James Callaghan’s Labor government asked the IMF for a $3.9 billion loan, the largest ever request from the IMF at the time.
Chatwell was not the only one who saw the possibility of an IMF bailout for the UK’s future. “The balance of payments financing crisis may seem dire, but it is not unprecedented,” Deutsche Bank strategist Shreyas Gopal explained on Monday.
A combination of aggressive fiscal spending, a severe energy shock and the slide of sterling finally enabled the UK to obtain an IMF loan in the mid-1970s.
“Today, England maintains some key defensive lines to prevent a sudden stop, but we are concerned that the threat is increasing,” the strategist detailed.
Former Conservative chancellor Ken Clarke said on Tuesday: “It is clear that we are going into a long and possibly very severe recession. Indeed, it may be the worst since 1990 and worse than before.
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