ALEX BRUMMER: IMF boss puts Kwasi in the naughty chair

Most of us can remember that sinking feeling when we were called to the headmaster’s study. It was rarely a glad tidings.

So it must have been for the besieged British Chancellor Kwasi Kwarteng and Bank of England Governor Andrew Bailey when they were called to a meeting in the office of IMF Director Kristalina Georgieva.

The IMF describes the session as routine ahead of Thursday’s G20 meeting of the world’s top finance ministers and central bankers.

The Fund, which led the call against Kwarteng’s mini-Budget of September 23, is proving ruthless.

Georgieva told the press conference of the annual meeting that what she wants to see from developed countries and other clients is a focus on reducing inflation, and that monetary and fiscal policies are moving in the same direction.

The IMF chief also emphasizes that better communication from top officials would be helpful. Bailey’s ears must have burned after the governor’s rocky appearance to leading bankers earlier this week.

The chancellor did his “stay on track” act for the media, explaining himself to other treasury ministers in a series of bilateral meetings, including a sharp exchange with US Treasury Secretary Janet Yellen.

Kwarteng promises an iron grip on fiscal policy, but does not rule out a reversal of the reduction in corporate tax.

Georgieva, for her part, encouraged a U-turn. She believed that the government should be guided by evidence and if the ‘evidence needs to be recalibrated, it is good that the government is doing that’. That’s polite IMF language to come back to tax cuts.

The director further argued that the bank’s interventions in the gold market were ‘appropriate’ given the financial stability risks, but did not assign a figure for implementation.

This collapse of toxic liability-driven investments, the £1 trillion worth of complex instruments that endanger pensions, is causing turmoil in bond and derivatives markets worldwide.

The dumping of assets by UK pension funds has resonated with financial markets from Sydney and New York to Frankfurt. That doesn’t look good for the city as a large and reliable financial center, and suggests that this crisis may not turn out to be uniquely British.

Amid the market turmoil, rampant political speculation about the Liz Truss government and the horrific regulatory failure by the Bank and pension enforcers, headteacher Georgieva reminded the world what great institutions Britain has in the Bank , the Treasury and the Bureau of Budgetary Responsibility.

It all sounds a bit like the headmaster saying that the students’ achievements in physics are bad, but thank goodness the school has the best labs in the country.

Price risks

Georgieva’s warnings about the inflation demon couldn’t have been harsher.

There was even an auto analogy, the second in a week, with the IMF chief declaring that “when monetary policy has to step on the brakes, fiscal policy doesn’t step on the accelerator.”

The global inflation shock is far from over, as the latest consumer prices out of the US show. Most alarmingly, “core inflation,” which takes away the cost of food and energy — two categories hit by Russia’s war in Ukraine — has risen to 6.6 percent, its highest point in 40 years.

For what it’s worth, the price of a cappuccino at the cafe next to my Foggy Bottom hotel is $6.75 – which we now have to read off in pounds.

General inflation in the US, which has risen to 8.2 percent, represents a further aggressive rate hike of 0.75 percentage point by the US central bank, the Federal Reserve. That brings the federal fund rate up to 4 percent.

Higher interest rate expectations in the US will push the dollar even further and put pressure on other central banks to harden their monetary stance.

Regardless of the failed mini-Budget, be prepared for even higher UK mortgage rates.

Sweet places

The financial system may not be working well, but the UK’s advanced pharmaceutical and gaming sectors continue to shine.

Trial results for GlaxoSmithKline’s respiratory syncytial virus (RSV) vaccine are good.

As a blockbuster treatment, it could generate billions of sales and support GSK as a leader in innovative vaccines.

And in the battle to intrigue game enthusiasts, Britain’s Roblox tops the sales charts, generating $1.4 billion in revenue.

Endeavor and creativity are alive and kicking.