London, Abandoned by Financial Markets: Gloomy Situation Starting to Worry

What if Britain loses the confidence of the markets and turns to the International Monetary Fund like in 1976? Even as Liz Truss was sworn in as leader of the Conservative Party on Monday 5 September – thereby becoming Prime Minister of the British government – ​​the hypothesis began to be debated in town. Le MondeCited by Rader.

London is the capital of Great BritainPhoto: Dreamstime.com

“(This assumption) may seem far-fetched, but it is not an unprecedented situation: a combination of aggressive fiscal spending, a severe energy shock and a sharply falling pound necessitated IMF assistance in the 1970s,” recalls Shreyas Gopal. Deutsche Bank, in a note published on Monday.

For now, the assumption is unlikely: “Britain retains several lines of defense against a sudden shutdown. [a pieței financiare]. But analysts warn that the risks are becoming more apparent.

Large current account deficit

The parallels with the 1970s are fascinating. The pound is at its lowest level since 1985 at 1.15 against the dollar.

The UK is already in recession: its GDP fell by 0.1% in the second quarter, and the gas crisis affecting the whole of Europe has since worsened. Britons suffer a violent shock from falling purchasing power.

Inflation is at 10%, and household gas and electricity bills will almost triple in October from last year.

But above all, the UK is facing an alarming increase in the current account deficit (the sum of the trade balance and financial flows out of the country), which reached 8% of GDP in the first quarter, an all-time high. . In other words, the country was never dependent on the rest of the world for funding.

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Ms Truss’s rival for the Conservative leadership, Rishi Sunak, also raised the possibility of a bleak scenario.

“It would be reckless not to take the risks of the UK debt crisis seriously,” he told the Financial Times on August 30.

Of course, the UK economy is not the only one affected by the gas shock. “The whole of Europe is sick, that’s true,” agrees Torsten Bell, director of the think tank Resolution Foundation. “But the problem is that Britain was already sicker than any other country before the war in Ukraine.”

Bell worries about the combination of fifteen years of weak economic growth and deepening inequality: “These two challenges are toxic to the economy’s outlook.”

The Lis Truss group shares this view to some extent, though not directly. “The same old management approach has left us with a stagnant economy and anemic growth,” Treasury Secretary hopeful Kwasi Kwarteng told the Financial Times.

That’s why he plans to unveil a massive tax cut plan to jump-start growth. But such an approach could be expensive: British newspapers are talking about 100 billion pounds (115 billion euros).

Back to the original question: Can the UK borrow such sums? Le Monde (radar pickup)

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