Can Britain shake off its inflation stigma?

IMF bailout fears are triple-A rated nonsense. The underlying problem isn't

Liz Truss and Kwasi Kwarteng, 2022 (Conservative Party)

Do you remember last summer’s “is Britain headed for an IMF bailout” discourse? Liz Truss certainly thought so. Her successor but one, Kemi Badenoch, feared that the indicators were “pointing in that direction”. For its part, the Sunday Telegraph was having fun playing journalese whack-a-mole, quoting “leading economists” on their grave “warnings” about a “1970s-style” crisis in which the UK would be forced to go “cap-in-hand” to the International Monetary Fund.

This was, of course, triple-A-rated nonsense. First, because the IMF has a total lending capacity of around $1 trillion. Sufficient to provide material stabilisation for small to medium-sized economies such as Egypt (with a nominal GDP of $429bn and outstanding IMF credits of $9.6bn¹) and Ecuador ($323bn and $9.7bn). But compare that to the UK.

Despite the best efforts of successive administrations and plebiscites, it is the world’s sixth largest economy, with a GDP of $4.26 trillion². It also has total debts of around $3.9 trillion. Simply put, it is way too large for the IMF to save. But even this risks missing the point. As the Wall Street Journal’s Joseph C. Sternberg points out in this terrific piece, it is not obvious that Britain’s economic woes are ones for which financial aid would be the answer.

The IMF, acting vaguely like a central bank, specializes in smoothing over liquidity panics. Britain and France aren’t illiquid. They’re insolvent.

Pourquoi la différence?

The UK, like many of its peers, is caught in something of a pincer movement, afflicted by low growth, high taxes and stubborn inflation. Throw in the rising costs of an ageing society, rearmament and climate change and no wonder the dinner party set talk of little else.

Still, the question — at least in the short-to-medium-term — isn’t “who” will lend to Britain. Plenty will! Rather, it is “for how much?” Swiftly followed by “good grief, how can we bring that down?”