In a BBC interview on Tuesday, Conservative leader Kemi Badenoch warned that Britain is at risk of a humiliating IMF bailout, drawing comparisons to the 1976 sterling crisis. She expressed deep concern that, in the absence of a strong plan for economic growth, the UK may experience a recurrence of the situation in which Jim Callaghan’s Labour government obtained a $3.9 billion IMF loan to support the pound almost fifty years ago.
Badenoch accused Prime Minister Keir Starmer’s administration of plunging the country into a “doom loop” of rising taxes, shaky public finances, and mounting borrowing costs.
Her action comes as the government is being shaken by the bond market, as borrowing costs in the UK recently reached a 27-year high before falling.
“A lot of the indicators are pointing in that direction,” Badenoch replied when asked why she believed the UK was on the verge of needing an IMF bailout.
“We’re not developing sufficiently. We’ll wind up going to the IMF with a cap in hand if Labour persists without a growth plan,” Badenoch stated.
“This is being said by numerous highly esteemed economists and commentators.”
Labour, meanwhile, retaliated forcefully, denouncing her warnings as “astonishing hypocrisy.”
The economy collapsed and mortgages skyrocketed under Kemi Badenoch’s Conservatives. The brass neck to offer counsel now is beyond belief,” a Labour source fired.
Several economists, notably on the right, have in recent weeks raised the prospect of a version of the 1976 sterling crisis repeating itself. This has been written off as hyperbole by other economists.
Former Bank of England Monetary Policy Committee member Andrew Sentance described “eerie parallels” between the current chancellor’s stance and that of the late Denis Healey, who served as chancellor during the 1976 sterling crisis.
However, Mr. Sentance came to the conclusion in an article for the Sun last month that: “The UK may not end up calling in the IMF.” In 1976, under Labour Prime Minister Jim Callaghan and Chancellor Denis Healey, the UK was dealing with crippling inflation, a collapsing pound, and mounting debt.
Investor confidence fell, causing a currency crisis that compelled the UK to seek a $3.9 billion loan from the IMF, the largest in the IMF’s history at the time. The event was viewed as a national embarrassment and seriously tarnished Labour’s economic credibility, which helped pave the way for Thatcherite economic reforms in the 1980s.
