ALEX BRUMMER: IMF boss puts Kwasi in the naughty chair

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ALEX BRUMMER: IMF boss puts Kwasi in the naughty chair

Most of us can remember that sinking feeling when summoned to the head teacher’s study. It was rarely glad tidings.So it must have been for Britain’s

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Most of us can remember that sinking feeling when summoned to the head teacher’s study. It was rarely glad tidings.

So it must have been for Britain’s under-fire Chancellor Kwasi Kwarteng and the governor of the Bank of England Andrew Bailey when called to a meeting at IMF managing director Kristalina Georgieva’s office.

The IMF describes the session as routine ahead of Thursday’s G20 gathering of the world’s top finance ministers and central bankers. 

Under fire: Chancellor Kwasi Kwarteng and the governor of the Bank of England Andrew Bailey were called to a meeting with IMF managing director Kristalina Georgieva

Under fire: Chancellor Kwasi Kwarteng and the governor of the Bank of England Andrew Bailey were called to a meeting with IMF managing director Kristalina Georgieva

Under fire: Chancellor Kwasi Kwarteng and the governor of the Bank of England Andrew Bailey were called to a meeting with IMF managing director Kristalina Georgieva

The Fund, which led the cry against Kwarteng’s September 23 mini-Budget, is proving unforgiving.

Georgieva told the annual meeting’s press conference that what she wants to see from advanced countries and other clients was a focus on beating back inflation, and monetary and budgetary policy moving in the same direction.

The IMF chief also insists better communications from top officials would be helpful. Bailey’s ears must have been burning after the governor’s rocky appearance before leading bankers earlier in the week.

The Chancellor has been doing his ‘staying the course’ act for media outlets and explaining himself to other finance ministers in a series of bilateral meetings, including a sharpish exchange with US Treasury Secretary Janet Yellen. 

Kwarteng is pledging an iron grip on fiscal policy but hasn’t ruled out a reversal of the corporation tax cut.

Georgieva for her part encouraged a U-turn. She opined that the Government should be led by evidence and if the ‘evidence has to be recalibrated, it is right for the Government to do so’. That is polite IMF-speak for retreating on tax cuts.

The managing director went on to argue that the Bank’s interventions in the gilts market were ‘appropriate’ given the financial stability risks, but awarded no marks for execution. 

This meltdown in toxic liability-driven investments, the £1 trillion of complex instruments that put pensions at risk, is agitating bond and derivative markets globally. 

The dumping of assets by UK pension funds is having reverberations in financial markets from Sydney and New York to Frankfurt. That is hardly a good look for the City as a great and reliable financial centre, and suggests that this crisis may not turn out to be uniquely British.

Amid the market turmoil, rampant political speculation about Liz Truss’s government and the appalling regulatory failure by the Bank and pension enforcers, head teacher Georgieva reminded the world what wonderful institutions Britain has in the Bank, the Treasury and Office for Budget Responsibility.

All of that is a bit like the principal declaring the student performance in physics has been scratchy, but thank goodness the school has the best labs in the country.

Pricing perils

Georgieva’s warnings about the inflation demon could not have been harsher.

There was even a motoring analogy, the second in a week, with the IMF boss declaring that ‘when the monetary policy has to step on the brakes, please don’t get fiscal policies to step on the accelerator’.

The global inflation shock is far from over, as latest consumer prices from the US show. Most worrying is that ‘core inflation’, which strips out the cost of food and energy – two categories affected by the Russia’s war in Ukraine – jumped to 6.6 per cent, which is a 40-year high. 

For what it is worth, the price of a cappuccino in the cafe next to my Foggy Bottom hotel is $6.75 – for which we now have to read pounds.

The headline rate of US inflation, having ticked up to 8.2 per cent, means a further aggressive interest rate rise of 0.75 of a percentage point response by the US central bank the Federal Reserve. That will take the federal funds rate up to 4 per cent.

Higher US rate expectations will push up the dollar even further and place pressure on other central banks to toughen their monetary stance.

Irrespective of the failed mini-Budget, be prepared for even higher mortgage rates in the UK.

Sweet spots

The financial system may be misfiring but the UK’s cutting-edge pharma and gaming sectors continue to shine.

Trial results for GlaxoSmithKline’s respiratory syncytial virus (RSV) vaccine are turning out well.

As a blockbuster treatment, it could generate multi-billions of sales and underpin GSK as a leader in innovative vaccines.

And in the battle to intrigue gaming enthusiast, the UK’s Roblox is topping the sales charts generating $1.4billion of revenues.

Endeavour and creativity are alive and well.

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