“Whenever there is change, there is disruption,” Liz Truss told the Conservative party conference last week. “And not everyone will be in favour.” This week, her chancellor, Kwasi Kwarteng, will fly out to Washington to meet at least one prominent critic.
The main focus of the International Monetary Fund annual meetings in the US capital will undoubtedly be the way the world responds to a succession of shocks: the Covid pandemic, Russia’s war in Ukraine and global heating. Global economic growth is faltering amid sky-high inflation and more natural disasters are sweeping the planet, while there are serious divisions between leading nations.
However, the British contingent will arrive for the gathering of 190 countries after a very public dressing-down from the IMF over the tax and spending plans in Kwarteng’s mini-budget. So could this be the Washington branch of the “anti-growth coalition”?
At the very least, making the trip so soon – less than two weeks after that 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 – by making a U-turn on plans to abolish the 45p income tax rate for the highest earners – after it criticised the chancellor for stoking inequality through unfunded tax cuts.
The criticism from backbench Tory MPs, who would have voted the government down over the plans, might have been more influential in the end. But the public attack from the IMF – unheard of for a big economy such as Britain, which is one of the fund’s biggest shareholders – will not have helped Kwarteng’s case.
In an attempt to get back on the front foot, the Truss government has adopted a more conciliatory tone, conscious that big financial investors are worried about her disregard 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 a chance to digest the first forecasts from the OBR, which were handed to the Treasury on Friday. Most economists expect them to paint a gloomy picture for the public finances and economic outlook, forcing Kwarteng to take tough decisions about how to pay for his mini-budget over the coming weeks.
The chancellor is expected to use a statement to the Commons, which is back in session this week after party conference season, to say he will bring forward the fiscal statement he planned for 23 November.
Bringing the statement forward to the end of this month would give the Bank of England more details of the chancellor’s economic plans before its announces its next decision on interest rates, in early November.
However, it will come at a tough moment, making choices over tax and spending more difficult. Official figures on the British economy, due on Tuesday, are expected to show that growth in August was flat, and the prospects for the months ahead probably aren’t much better.
The IMF is expected to issue another sharp downgrade for global growth this week. Kristalina Georgieva, its managing director, said last week that recession risks were mounting, and warned that a period of relative international stability was giving way to a new age of disruption.
Even countries where growth remains positive would still feel like they were in a recession, she warned, because the inflation shock sweeping the world would lead to shrinking real incomes for many.
A global output loss of about $4tn (£3.6tn) between now and 2026 – the equivalent of the annual output of the German economy – 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.
For all the new leader’s attacks on the anti-growth coalition, Britain is likely to be part of it.
