'Stop the market jitters': IMF chief chides UK as pressure grows on Truss for U-turn

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By Alasdair Sandford  with Reuters, AFP
International Monetary Fund Managing Director Kristalina Georgieva speaks at a news conference annual meeting of the IMF and the World Bank Group, Washington, Oct. 13, 2022.
International Monetary Fund Managing Director Kristalina Georgieva speaks at a news conference annual meeting of the IMF and the World Bank Group, Washington, Oct. 13, 2022.   -   Copyright  AP Photo/Patrick Semansky

The British government has come under varying degrees of veiled criticism from the world's financial leaders over its disputed mini-budget proposal.

The financial market turmoil triggered by the planned increased spending and tax cuts has threatened to overshadow bigger economic challenges, such as the fight against inflation and the impact of the war in Ukraine.

The jibes — some direct, some more muted — came as they gathered in Washington for the autumn meetings of the International Monetary Fund (IMF), World Bank and the G20's top finance ministers and central bankers.

On Thursday, IMF Managing Director Kristalina Georgieva called for "policy coherence" in response to a reporter's question about the UK.

She told a news conference that she had told British finance minister, Chancellor of the Exchequer Kwasi Kwarteng, and Bank of England Governor Andrew Bailey to make sure that "in this jittery environment, there would be no reasons for more jitters".

The government's uncosted tax-cutting plan announced on 23 September came on top of a massive energy support package and sparked a series of economic shocks. 

The pound crashed to a record low against the US dollar, borrowing costs soared, mortgage lenders withdrew offers, and the Bank of England was forced to intervene to protect pension funds from partial collapse.

Earlier this week, IMF chief economist Pierre-Olivier Gourinchas said, quoting directly from London's policy, that "it's like having a car with two people trying to turn the wheel in a different direction".

"Our message to everybody, not just to the UK, at this time, fiscal policy should not undermine monetary policy because, if it does, the task of monetary policy only becomes harder and it translates into the necessity of even further increases of rates and tightening of financial conditions," Georgieva said on Thursday. "So don't prolong the pain."

There was also veiled criticism of British policy from the European Central Bank (ECB) President Christine Lagarde.

"We have seen good and bad examples of what cooperation or lack of cooperation can cause" between monetary and fiscal policies, she said on Wednesday.

Kwarteng said in Washington on Thursday that "our position has not changed", denying media reports that the government is planning a major U-turn on its tax-cutting plan. 

Britain's finance minister is due to announce his medium-term budget plans on 31 October, alongside independent fiscal forecasts.

The IMF's Kristalina Georgieva appeared to encourage such a move, however, saying that action should be "evidence-driven" and if "there needs to be a recalibration, it is right for governments to do it".