The head of the International Monetary Fund (IMF) has warned ‘winter is coming’ for the global economy – as bond market turmoil sent UK borrowing costs to a fresh 28-year high.
In a hard-hitting speech, Kristalina Georgieva raised the alarm over rising energy prices, soaring government debt and the rapid advance of artificial intelligence (AI).
And she said countries must take tough choices such as reining in spending by weaning the public off state support, and hiking interest rates.
It came as fresh global market turmoil saw yields on 30-year UK bonds, known as gilts, climb past 6.03 per cent to hit the highest level since 1998.
US long-term borrowing costs also leapt to the highest since 2002 while in France – which is grappling with a budget crisis – yields jumped too. Meanwhile the euro slumped, helping the pound climb to a 16-month high versus the single currency.
It came as oil prices rose past $102 a barrel, further stoking global inflation fears, before easing.
IMF managing director Kristalina Georgieva said ‘tough political choices’ were needed
Winter is coming: The IMF chief quoted Game of Thrones in her speech
Those fears have convulsed bond markets since Donald Trump’s Iran war began earlier this year and continue to ripple through the economy.
And they were highlighted by IMF managing director Georgieva in her speech in Singapore on Wednesday.
‘To quote from Game of Thrones, winter is coming,’ she said.
‘Price pressures may build further as demand rises with the approach of the Northern hemisphere cold season and as countries replenish reserves.
‘Even if the war in the Gulf were to end soon, the problem of high energy prices would likely persist for some time. Brent futures, for example, now predict high oil prices through 2027.’
Meanwhile the boom in data centre building caused by AI is adding to inflation pressures, she added.
At the same time, global public debt is near its highest level since the Second World War and on track to exceed 100 per cent of gross domestic product (GDP), she said.
The speech came ahead of next week’s annual meetings of the IMF and the World Bank in Bangkok, during which the IMF will publish new economic forecasts.
Georgieva said the outlook would reflect the ‘global economic damage’ wrought by the ongoing wars in the Middle East and Ukraine.
She said a ‘prudently hawkish’ approach from central banks was needed – piling pressure on the Bank of England to raise interest rates next month to follow the US Federal Reserve and the European Central Bank which have already done so.
Georgieva said advanced economies saddled with soaring debt piles have not yet taken the ‘decisive action’ needed to tighten their belts – and must not delay longer.
That will be a ‘heavy lift’, she acknowledged.
‘After a succession of shocks where, each time, fiscal policy has had to step in to cushion the impact, populations have grown accustomed to state support,’ Georgieva said.
‘Some very tough political choices stare us in the face.’
The remarks chime with comments from the Prime Minister’s one-time adviser Andy Haldane a day earlier, who warned that Britain was ‘skating on thin ice’ and must ‘take the knife’ to ballooning public spending to reassure markets.
And they add to the pressure on Chancellor John Healey three weeks ahead of the Budget as he seeks to find the money to pay for Andy Burnham’s plans to tackle the cost of living, boost defence spending, ramp up council house building, and overhaul social care.
At the same time his room for manoeuvre is being narrowed by the rise in borrowing costs, which experts believe will more than halve the UK’s Budget ‘headroom’.
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