1976 sterling crisis

September 2022 Situation of prolonged doubt in the strength of Britain's currency September 2022 thumb|300px|right|UK inflation history thumb|300px| #4572A7 solid 4px UK M4 Money Supply Increases #AA4643 solid 4px UK Inflation thumb|300px|right|GBP/USD exchange rate The 1976 sterling crisis was a currency crisis in the United Kingdom. Inflation (at close to 25% in 1975, causing high bond yields and borrowing costs), a balance-of-payments deficit, a public-spending deficit, and the 1973 oil crisis were contributors.https://www.economicshelp.org/blog/132993/economics/uk-imf-crisis-of-1976/ UK – IMF Crisis of 1976 6 October 2022 The origins of the crisis have been attributed to the 1972 Conservative "dash for growth" budget initiating the inflation cycle.G. R. Steele https://doi.org/10.1111/j.1468-0270.2010.02028.x INFLATION ECONOMICS: THE HEATH–BARBER BOOM, 1972–74 Economic Affairs 2010 30 3 79–81 10.1111/j.1468-0270.2010.02028.x 152522190 subscription James Callaghan's Labour government had to borrow $3.9 billion (equivalent to $US 3900000000 1976 in USUS dollars) from the International Monetary Fund (IMF),http://www.nationalarchives.gov.uk/cabinetpapers/themes/imf-crisis.htm Cabinet papers IMF crisis National Archives 17 December 2015 11 January 2021 https://web.archive.org/web/20210111103335/https://www.nationalarchives.gov.uk/cabinetpapers/themes/imf-crisis.htm live while implementing significant spending cuts, with the intention of maintaining the exchange rate of sterling.https://www.economicshelp.org/blog/132993/economics/uk-imf-crisis-of-1976/ UK – IMF Crisis of 1976 6 October 2022 At the time this was the largest loan ever to have been requested from the IMF.Sterling devalued and the IMF loan http://www.nationalarchives.gov.uk/cabinetpapers/themes/sterling-devalued-imf-loan.htm The National Archives 17 December 2015 22 February 2014 https://web.archive.org/web/20140222060146/http://www.nationalarchives.gov.uk/cabinetpapers/themes/sterling-devalued-imf-loan.htm live History thumb|300px|UK bonds 1960–2022 Government borrowing for debt (10-year bond) increased to over 15% in the 1970s and early 1980s. thumb|The 1973 oil crisis caused an increase in the price of Brent Crude. Initiation of the inflationary cycle is traced to Anthony Barber's 1972 budget which was designed to return the Conservatives to power in an election expected in 1974 or 1975. This budget led to a brief period of growth known as "The Barber Boom," followed by a wage-price spiral, high inflation and currency depreciation, culminating in the 1976 sterling crisis. Barber was forced to introduce anti-inflation measures, along with a Price Commission and a Pay Board. The Conservatives lost the February 1974 general election (and the subsequent election held the same October) to Harold Wilson's Labour Party. After the defeat of the 1976 public expenditure white paper in the House of Commons in March 19762016-05-18 British Left reject fiscal strategy – speculation mounts, March 1976 – William Mitchell – Modern Monetary Theory https://billmitchell.org/blog/?p=33563 2025-11-25 en-US and the Bank of England withdrew temporarily from the foreign exchange market,Rogers Chris The Politics of Economic Policy Making in Britain: A Re – assessment of the 1976 IMF Crisis 2009 University of Warwick 17 http://wrap.warwick.ac.uk/4323/1/WRAP_Rogers_100211-the_politics_of_economic_policy_making_in_britain_pp_26-6-2009.pdf 17 December 2015 14 November 2016 https://web.archive.org/web/20161114233603/http://wrap.warwick.ac.uk/4323/1/WRAP_Rogers_100211-the_politics_of_economic_policy_making_in_britain_pp_26-6-2009.pdf live Harold Wilson resigned as prime minister and was replaced by James Callaghan in April.https://news.bbc.co.uk/onthisday/hi/dates/stories/april/5/newsid_4074000/4074428.stm BBC On This Day 5 April 1976 17 December 2015 7 March 2008 https://web.archive.org/web/20080307121651/http://news.bbc.co.uk/onthisday/hi/dates/stories/april/5/newsid_4074000/4074428.stm live Sterling continued to be under pressure on the foreign exchange markets such that, by June 1976, the pound had reached a record low against the dollar. Oil shocks In 1967, the Suez Canal closed down for eight years following the Six-Day War of that year, when Israel took and occupied the Sinai Peninsula for 15 years. That triggered the 1967 Oil Embargo, which only lasted a few months. In 1966, the year before it closed, 20% of all world oil cargo tonnage passed through the canal,September 2022 with most of it heading north for Europe. In 1973, the Yom Kippur War was fought, with Egypt crossing the Suez Canal aiming to take back the Sinai Peninsula from Israel. This triggered the 1973 oil crisis and embargo. Britain was an ally to Israel during the Arab–Israeli conflict.https://www.jstor.org/stable/40394822 40394822 Soviet Oil Politics and the Suez Canal Klinghoffer Arthur Jay The World Today 1975 31 10 397–405 Corbett Michael https://www.federalreservehistory.org/essays/oil-shock-of-1973-74 Oil Shock of 1973–74 Federal Reserve History 2022-08-27 The oil crisis presented a severe economic shock to Britain, which it was ill-placed to withstand.https://www.britannica.com/event/Six-Day-War Six-Day War Definition, Causes, History, Summary, Outcomes, & Facts Encyclopedia Britannica 25 August 2024 Outcome Only half of the loan was actually drawn by the British government and it was repaid by 4 May 1979,The Time of my Life Denis Healey Penguin 1990 978-1842751541 432 the day after the general election. 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.https://www.ft.com/content/11484844-b565-11df-9af8-00144feabdc0 Defining Moment: Denis Healey agrees to the demands of the IMF Moran Joe 4 September 2010 Financial Times 23 March 2019 23 March 2019 https://web.archive.org/web/20190323145413/https://www.ft.com/content/11484844-b565-11df-9af8-00144feabdc0 live 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 more socialist camps, causing bitter rows inside the party and with the trades unions. The sterling crisis and IMF bailout contributed to Margaret Thatcher's 1979 Conservative victory.1976 government papers https://news.bbc.co.uk/2/hi/uk_news/politics/6212557.stm BBC News 29 December 2006 24 December 2015 3 September 2017 https://web.archive.org/web/20170903072238/http://news.bbc.co.uk/1/hi/uk_politics/6212557.stm live See also Economic history of the United Kingdom Galloping inflation Stagflation Pound sterling Sterling Sterling crisis, other currency crises in British history Winter of Discontent Closure of the Suez Canal (1967–1975) shortly after the start of the "Six-Day War" or Third Arab–Israeli War 1970s commodities boom Alternative Economic Strategy Notes References 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 The IMF Crisis of 1976 and British Politics: Keynesian Social Democracy, Monetarism and Economic Liberalism: the 1970s Struggle in British Politics https://books.google.com/books?id=kstOuQ0qJoEC&pg=PA14 13 May 2005 I.B.Tauris 978-1-85043-725-3 14– Kathleen Burk Alec Cairncross Good-bye, Great Britain: The 1976 IMF Crisis https://books.google.com/books?id=YamJGlX2_vkC 1992 Yale University Press 0-300-05728-8 Mark D. Harmon The British Labour Government and the 1976 IMF Crisis https://books.google.com/books?id=NhJtQgAACAAJ 1997 Macmillan 978-0-333-67818-3 collapsed Category:1976 in economic history Category:1976 in the United Kingdom Category:Financial crises in the United Kingdom Category:Economic crises in the United Kingdom Category:International Monetary Fund Category:History of pound sterling Category:1970s energy crisis