IMF Crisis 1976

Tim Lankester

World Economics, 2026, vol. 27, issue 3, 91-120

Abstract: The UK economic crisis of 1976 led, after six months of intense political drama and economic debate, to a record $3.9 billion loan from the IMF. The economy had been improving after recession and high inflation in 1974 and 1975; but the financial markets lost confidence in the government's economic strategy, resulting in a sharp fall in sterling and loss of foreign exchange reserves. Within government, four possible responses were debated: early application to the IMF for a major loan; fiscal retrenchment without an IMF loan; generalised import controls; and carrying on with existing policies regardless of the financial consequences. The second of these was attempted, but failed to restore market confidence. The third and fourth approaches were favoured by some cabinet members, but Prime Minster Callaghan and Chancellor Healey considered them unrealistic and too risky. In the face of Labour Party opposition, Healey applied to the IMF. Negotiations focused on public sector borrowing. The IMF sought much larger cuts than the government was willing to concede. Eventually, they settled for a middle way'. The agreement was a success, considered by the IMF as one of its best. Over the next two years, sterling and the foreign exchange reserves quickly recovered, growth improved and inflation was substantially reduced. Sadly, the success did not endure - as nation-wide strikes in early 1979 led to a resurgence of inflation and the downfall of the Callaghan government.

Date: 2026
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.world-economics-journal.com/Papers/Details.aspx?ID=983 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wej:wldecn:983

Access Statistics for this article

More articles in World Economics from World Economics, 1 Ivory Square, Plantation Wharf, London, United Kingdom, SW11 3UE
Bibliographic data for series maintained by Ed Jones ().