1976 UK sterling crisis

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The 1976 sterling crisis was a balance of payments, or currency crisis, in the United Kingdom in 1976 which caused James Callaghan's Labour government to borrow $3.9 billion ^{[lower-alpha 1]} from the International Monetary Fund (IMF), ^[2] with the intention of maintaining the value of the pound. ^[3] At the time this was the largest loan ever to have been requested from the IMF ^[4] . Inflation hit close to 25% in 1975, causing high bond yields and borrowing costs, and the 1973 oil crisis were contributors to the problem. ^[5]

History

UK bonds 1960-2022
Government borrowing for debt (10 year bond) increased to over 15% in the 1970s and early 1980s.

The 1973 oil crisis caused an increase in the price of Brent Crude

The crisis took place during James Callaghan's term as Prime Minister, ^[6] and caused the Bank of England to withdraw temporarily from the foreign exchange market. ^[7] After the defeat of the public expenditure white paper in the House of Commons in March 1976 and the resignation of Harold Wilson, many investors became convinced sterling would soon lose value due to inflation. By June 1976, the pound had reached a record low against the dollar. ^[4]

Outcome

Only half of the loan was actually drawn by the British government and it was repaid by 4 May 1979. ^[8] Denis Healey, the Chancellor of the Exchequer at the time, went on to state that the main reason the loan had to be requested was that public sector borrowing requirement figures provided by the treasury were grossly overstated. ^[9] Despite this all terms required by the IMF were fully implemented.

The IMF loan meant that the United Kingdom's economy could be stabilised whilst drastic budget cuts were implemented. Despite the security provided by the loan, the Labour Party had already begun separating into social democratic and left-wing camps, causing bitter rows inside the party and with the unions. Some believe this may have contributed significantly to Margaret Thatcher's 1979 Conservative victory. ^[10]

See also

• Economic history of the United Kingdom
• Galloping inflation
• Sterling, the currency of the United Kingdom
• Stagflation
• Sterling crisis, other currency crises in British history
• Winter of discontent

Notes

1. equivalent to $18.6 billion in 2021) ^[1] dollars

References

1. 1634–1699: McCusker, J. J. (1997). How Much Is That in Real Money? A Historical Price Index for Use as a Deflator of Money Values in the Economy of the United States: Addenda et Corrigenda (PDF). American Antiquarian Society. 1700–1799: McCusker, J. J. (1992). How Much Is That in Real Money? A Historical Price Index for Use as a Deflator of Money Values in the Economy of the United States (PDF). American Antiquarian Society. 1800–present: Federal Reserve Bank of Minneapolis. "Consumer Price Index (estimate) 1800–" . Retrieved 16 April 2022.
2. "Cabinet papers | IMF crisis". National Archives. Archived from the original on 11 January 2021. Retrieved 17 December 2015.
3. "UK – IMF Crisis of 1976".
4. "Sterling devalued and the IMF loan". The National Archives. Archived from the original on 22 February 2014. Retrieved 17 December 2015.
5. "UK - IMF Crisis of 1976".
6. "BBC On This Day". 5 April 1976. Archived from the original on 7 March 2008. Retrieved 17 December 2015.
7. Rogers, Chris (2009). The Politics of Economic Policy Making in Britain: A Re - assessment of the 1976 IMF Crisis (PDF). University of Warwick. p. 17. Archived (PDF) from the original on 14 November 2016. Retrieved 17 December 2015.
8. Denis, Healey (1990). The Time of my Life. Penguin. p. 432. ISBN   978-1842751541.
9. Moran, Joe (4 September 2010). "Defining Moment: Denis Healey agrees to the demands of the IMF". Financial Times. Archived from the original on 23 March 2019. Retrieved 23 March 2019.
10. "1976 government papers". BBC News. 29 December 2006. Archived from the original on 3 September 2017. Retrieved 24 December 2015.

Further reading

• Burk, Kathleen. "1976 IMF Crisis." (1989): 39-45.
• Ludlam, Steve. "The gnomes of Washington: Four myths of the 1976 IMF crisis." Political Studies 40.4 (1992): 713-727.
• Wass, Douglas. Decline to Fall: The Making of British Macro-economic Policy and the 1976 IMF Crisis. Oxford University Press, 2008.
• Kevin Hickson (13 May 2005). The IMF Crisis of 1976 and British Politics: Keynesian Social Democracy, Monetarism and Economic Liberalism: the 1970s Struggle in British Politics. I.B.Tauris. pp. 14–. ISBN   978-1-85043-725-3.
• Kathleen Burk; Alec Cairncross (1992). Good-bye, Great Britain: The 1976 IMF Crisis. Yale University Press. ISBN   0-300-05728-8.
• Mark D. Harmon (1997). The British Labour Government and the 1976 IMF Crisis. Macmillan. ISBN   978-0-333-67818-3.