Is the UK on track for an International Monetary Fund bailout?

That’s the view of Peter Chatwell, head of global macro strategies at Mizuho Securities, as expressed in an interview with Bloomberg Television on Monday.

Liz Truss, he says, promises fiscal policy the government cannot afford. And he doesn’t believe the Bank of England can get inflation close to its 2% mandate in the medium term.

“I think of two potential crises that this makes me think of. One is the [European Exchange Rate Mechanism]so 1992. And then I think of the possibility of an IMF bailout, like in 1976.”

If the Truss government is then replaced by a Labor-led government, Chatwell said, then those are the scenarios markets will increasingly price in, he said.

He said GBPUSD pound,
+0.02%
falling to parity with the dollar is not priced in options markets, and said the Bank of England may have to raise interest rates to 5%.

Chatwell was not the only person to put the UK and the IMF in the same sentence on Monday.

“A balance of payments funding crisis may seem extreme, but it is not without precedent: a combination of aggressive fiscal spending, a severe energy shock and a falling pound sterling ultimately drove the Kingdom UK to resort to an IMF loan in the mid-1970s. Today the UK retains some key lines of defense against a sudden shutdown, but we are concerned that the risks will nevertheless increase,” said Shreyas Gopal, strategist at Deutsche Bank.

Gopal says the trade-weighted pound would need to fall another 15% to bring the UK’s external deficit back to its ten-year average.

It should be noted that the United Kingdom is one of the largest contributors to the IMF, with the same level of quota as France.

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