After October’s Truss Disaster, UK Rebuilds Reputation at IMF

Philip Aldrick
Updated ·4 min read
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(Bloomberg) -- UK Chancellor of the Exchequer Jeremy Hunt was not just attending the International Monetary Fund’s spring meetings in Washington for the usual finance minister roundtables and global economic security discussions. He had another agenda –- to restore Britain’s reputation.

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Six months ago, the UK was the punchline to a series of dark gags at the IMF’s annual meetings after former Prime Minister Liz Truss’s disastrous tax-cutting mini-budget crashed the pound and triggered a financial crisis that forced a £20 billion ($24.8 billion) Bank of England intervention.

The Egyptian delegation joked that their pound had better prospects than sterling. Egypt was in a bailout program. The Greek prime minister, Kyriakos Mitsotakis, offered to help the UK deal with the IMF. One UK official at the Fund said dealing with the pity of colleagues had been excruciating.

Hunt told Bloomberg TV this week that it had been “obviously a very difficult period for the UK,” but the “page has turned.” Speaking to reporters later, he added: “The UK is back — that would be the way I’d describe how we are viewed.”

Asked if Hunt was right, Alfred Kammer, who heads the European department at the IMF, answered: “Unequivocally, yes.” One minister of a European Union country said there has been a “fundamental shift.”

Paschal Donohoe, former Irish finance minister and head of the eurogroup of finance ministers, said: “The general feeling about the UK has been quite positive.”

‘Excellent Contributions’

Behind the scenes, the UK delegation was pulling out the stops to demonstrate its commitment to the institutional multilateralism that Truss had little time for. Hunt and Bank of England Governor Andrew Bailey showed up at the meetings earlier than usual. Bailey delivered a speech and a public interview.

Hunt spoke with the US and financial media, and packed out his itinerary with bi-laterals when he wasn’t in the set-piece roundtable sessions, according to Treasury officials. He and Bailey had a private meeting with Kristalina Georgieva, the IMF managing director.

“Jeremy has made excellent contributions to all the meetings and made a strong case describing the UK’s position,” Donohoe said.

Against this better mood music and progress made in reputation repair this week, the hard facts still show numerous headwinds and challenges to UK growth ahead.

The economy has been the slowest among Group of Seven members to recover from Covid and political uncertainty since the 2016 Brexit vote caused business investment to stall for six years.

Government data out Tuesday showed that the economy had stalled unexpectedly in February and is on track for an extended period of stagnation. Furthermore, there’s little scope for the fiscal or monetary stimulus that might help convince foreigners to invest.

‘Very Encouraged’

Still, the contrast with October could not have been more stark, when former Chancellor Kwasi Kwarteng was summoned back to the UK to be sacked, leaving an empty chair at a finance ministers plenary session that Bailey had to fill.

It was not just the glad-handing, though. As well as telling anyone who would listen that the UK is the world’s sixth-largest economy, has the second-largest financial center and the third-largest tech economy, the chancellor committed $670 million to the IMF’s Poverty Reduction & Growth Trust, an interest free loan program for heavily indebted poor countries.

Only Ireland, Japan, Portugal and Saudi Arabia joined the UK. Georgieva said she was “very encouraged” by their commitment.

UK Assets on Impressive Run as Outlook Brightens: Markets Today

Kammer said markets had delivered their judgment. “The pound is stronger than it was before the mini-budget, gilt rates have reversed,” he said. He praised “excellent elements” of Hunt’s March budget.

Not everyone was satisfied. One World Bank official said Britain has been “a leading voice” in development but the decision to cut the aid budget in 2021 from 0.7% to 0.5% of GDP meant Britain’s last replenishment was smaller.

“The UK now has a smaller voice. Money talks,” the official said.

And with Hunt and team making the rounds in Washington, the newest IMF global growth forecasts were released, which included dismal UK projections of a 0.3% GDP decline in 2023 followed by a meager 1% expansion next year.

For his part, the chancellor said the IMF had once again been too downbeat on the UK, as it has been since 2016. Perhaps those perennial tensions were a sign of relations getting back to normal.

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