As the guests sipped English sparkling wine at the British embassy on Washington DC’s Massachusetts Avenue, the journalists in attendance were herded together for an impromptu briefing at the nearby temporary residence of the UK ambassador Dame Karen Pearce.
The briefing was short and to the point: Kwasi Kwarteng was cutting short his planned trip to the annual meeting of the International Monetary Fund and flying home to London.
None of the assembled hacks believed for a minute the official explanation for the chancellor’s hasty departure, that he wanted to engage with colleagues about his planned fiscal statement due at the end of the month. The assumption – correct as it turned out – was that Kwarteng was flying home to be sacked. The decision was so sudden that IMF officials were left in the dark about it.
In a way, it was appropriate that Kwarteng’s last full day in the job should have been in Washington, because the IMF is the ultimate bastion of the economic orthodoxy the Truss government has been battling against for the past six weeks. Kwarteng’s epitaph as chancellor might well be: I fought the orthodoxy and the orthodoxy won.
The IMF’s unhappiness with the UK first surfaced two weeks before the annual meetings in Washington, when it put out a statement in the wake of September’s tax-cutting mini budget saying the measures were likely to “increase inequality”, and it did not approve of large and unfunded stimulus packages when inflation was so high.
This week, the IMF turned the screw. Tuesday, the day before Kwarteng’s arrival, saw the release of the Fund’s two flagship publications: the world economic outlook and the global financial stability review. Both were critical of the UK, pointing out that the Treasury was adding to the cost of living at the same time as the Bank of England was raising interest rates to bring down inflation. It was, one official put it, like two people fighting over a car’s steering wheel.
Andrew Bailey was also in Washington and on the same day. The governor of the Bank of England was interviewed on stage at the Ronald Reagan Centre on Pennsylvania Avenue, the venue for the meeting of the Institute of International Finance (IIF), the trade body for the global financial services industry.
Speaking to Tim Adams, the IIF’s president, Bailey said the Bank of England’s bond-buying support for the pensions’ industry would be wound up at the end of the week. “You’ve got three days left now,” Bailey said. “You’ve got to get this done.”
It had taken action by the UK central bank to stem the run on pension funds after the adverse market reaction to the mini-budget. Now Threadneedle Street was sticking to its line that the scheme had to be temporary. With a hard stop on the Bank’s support pressure on the chancellor and prime minister to rethink their tax plans ratcheted up.
If Kwarteng imagined the worst was over by the time he touched down at Dulles airport on Wednesday he was wrong. His last 48 hours as chancellor could be summed up by uncomfortable encounters with three women.
The first sign of trouble came at a meeting of the G7, a group made up of Britain, the US, Japan, Canada, Germany, Italy and France. America’s Treasury secretary, Janet Yellen, told Kwarteng she took a dim view of the mini-budget, which was causing turmoil in the markets.
There was some irony in Yellen’s attack, given that the Joe Biden administration has itself borrowed money to finance its spending plans. The US, though, is the world’s biggest economy and issues the world’s reserve currency, the dollar. Different rules apply to a country such as the UK.
The second woman Kwarteng had to contend with was Kristalina Georgieva, the IMF’s managing director. With speculation already circulating in London that Truss was planning a U-turn on corporation tax, Georgieva made clear she would support a “recalibration”.
After meeting Kwarteng and Bailey, the IMF head said they had discussed the importance of policy coherence and communicating clearly. Once again, a motoring metaphor was deployed. When monetary policy was putting its foot on the brake, fiscal policy should not be putting its foot on the accelerator.
Fund officials said the remarks were a blanket warning and not meant to single out the UK. Few were fooled. It was telling that Georgieva went out of her way to praise Bailey for his “appropriate” action to maintain financial stability. There was no show of support for Kwarteng.
The chancellor spent the rest of the day in a series of bilateral meetings, finding time for what proved to be a valedictory interview with the Daily Telegraph. At some point in the afternoon a decision was made that he was to fly home immediately for a meeting with a third woman: Liz Truss. On the flight back he had plenty of time to prepare himself for the sacking that inevitably followed.
