“Whenever there’s change, there’s disruption,” Liz Truss told the Conservative Party Conference last week. “And not everyone will be in favor.” This week, its chancellor, Kwasi Kwarteng, will fly to Washington to meet with at least one top critic.
The main focus of the International Monetary Fund’s annual meetings in the US capital will undoubtedly be how the world responds to a succession of shocks: the Covid pandemic, Russia’s war in Ukraine and global warming. Global economic growth is faltering amid soaring inflation and more and more natural disasters are sweeping the planet, while there are serious divisions between major nations.
However, the British contingent will arrive for the 190-nation gathering after a very public bashing of the IMF over Kwarteng’s mini-budget tax and spending plans. Could this then be the Washington branch of the “anti-growth coalition”?
At the very least, making the trip so soon – less than two weeks after this public rebuke – will mean an awkward introduction to international diplomacy for the new chancellor.
Kwarteng has at least heeded one of the IMF’s key warnings – reversing plans to scrap the 45p income tax rate for top earners – after criticizing the chancellor for fueling inequality through unfunded tax cuts.
Criticism from Tory backbenchers, who would have rejected the government over the plans, might have been more influential in the end. But the IMF’s public attack – unprecedented for a major economy like Britain, which is one of the fund’s biggest shareholders – will not have helped Kwarteng’s case.
In an attempt to return to center stage, the Truss government has adopted a more conciliatory tone, aware that major financial investors are concerned about its contempt for economic institutions – the Bank of England and the Office for Budget Responsibility , as well as the IMF.
Over the weekend, the Chancellor will have had the opportunity to digest the first forecasts of the OBR, submitted to the Treasury on Friday. Most economists expect them to paint a bleak picture for public finances and the economic outlook, forcing Kwarteng to make tough decisions on how to pay its mini-budget in the coming weeks.
The Chancellor is expected to use a statement in the House of Commons, which is back in session this week after the party‘s conference season, to say he will present the financial statement he has planned for November 23.
Bringing the statement forward to the end of this month would give the Bank of England more details on the Chancellor’s economic plans before she announces her next interest rate decision in early November.
However, this will come at a difficult time, making tax and spending choices more difficult. Official UK economic figures, due on Tuesday, are expected to show growth in August was flat and the outlook for the months ahead is unlikely to be better.
The IMF is expected to issue another sharp downgrade to global growth this week. Kristalina Georgieva, its chief executive, said last week that recession risks were rising and warned that a period of relative international stability was giving way to a new era of disruption.
Even countries where growth remains positive would still feel like they were in recession, she warned, as the inflationary shock sweeping the world would drive down real incomes for many.
A global output loss of around $4bn (£3.6bn) by 2026 – the equivalent of the German economy’s annual output – is expected. As many as a third of the world’s economies will experience at least two consecutive quarters of contraction – the technical definition of a recession – this year or next.
Despite all the new leader’s attacks on the anti-growth coalition, Britain is likely to be part of it.