Badenoch warns UK could be forced to seek IMF bailout unless government delivers growth plan

Kemi Badenoch, the leader of the Conservative Party, said the United Kingdom could be forced to seek an International Monetary Fund bailout unless the government presents a credible plan to revive economic growth.

Speaking on BBC Newsnight, Badenoch said she was "really worried" that the country could end up "cap in hand" to the IMF and warned of a "crisis" in UK bond prices and precarious public finances if policymakers did not act.

Badenoch pointed to a series of indicators she said were pointing toward a repeat of pressures similar to those that precipitated the 1976 sterling crisis, when the Labour government under Prime Minister James Callaghan sought an emergency IMF loan of $3.9 billion (about £2.9 billion at the time). She said rising borrowing costs and weak growth risked trapping the country in a "doom loop" of higher taxes and fragile public finances unless the government pursued both welfare cuts and measures to boost growth.

"Many very well respected commentators and economists are saying this," Badenoch said. She highlighted that yields on long-dated UK government bonds, known as gilts, had climbed in recent months and that borrowing costs hit a 27-year high last week — trends she described as "yet another indicator" of mounting pressure.

Governments raise money by selling bonds, promising to repay investors at maturity. When yields rise, the cost of borrowing increases for the issuer. Gilts yields have been elevated in recent months, though they have fallen back slightly from recent peaks.

Badenoch framed her remarks as an attempt to prompt cross-party action, offering to work with Prime Minister Sir Keir Starmer "in the national interest" to cut welfare spending as a way to address the fiscal strain. She said any support from the Conservatives would not be a "blank cheque," and urged agreement on policies that could reduce pressure on public finances.

The Conservatives have in recent months pressed two key conditions for working with the government: maintaining a two-child benefit cap and pursuing significant welfare reductions. The party did not back the government's watered-down welfare Bill in July, after a Conservative backbench rebellion forced concessions.

Labour sources dismissed Badenoch's intervention. A Labour Party source said: "Kemi Badenoch's Conservatives crashed the economy and sent mortgages spiralling. The brass neck Kemi has to think she can offer advice on the economy now is astonishing. The Tories haven't listened and they haven't learned." The government has not elaborated a response to Badenoch's specific proposals during the Newsnight interview.

Economists remain divided on the likelihood of a 1976-style IMF approach. Some commentators, mainly on the political right, have warned of "eerie parallels" between current conditions and those that confronted Chancellor Denis Healey during the 1976 sterling crisis. Andrew Sentance, a former member of the Bank of England's Monetary Policy Committee, has written about such parallels, though he has also said the UK "may not end up calling in the IMF." Other economists have dismissed comparisons to 1976 as hyperbolic.

Badenoch said that if the government failed to produce a plan to boost growth, "we will end up going to the IMF cap in hand." She argued that working together on measures to stabilise public finances would serve the national interest and avoid harm to households and the wider economy.

The reference to a potential IMF intervention recalls a defining moment in postwar British economic history. In 1976, the Callaghan government's decision to seek IMF assistance was widely seen as damaging to the administration's economic credibility and continues to be invoked in debates about fiscal credibility and sovereign borrowing.

Markets will be watching forthcoming fiscal statements, growth forecasts and any policy moves closely for signals on the government’s strategy for restoring investor confidence. Badenoch's comments add to pressure on policymakers to articulate measures that could reduce borrowing costs and catalyse growth, while the political debate over welfare and fiscal priorities is likely to remain central to discussions in Westminster.