Bank of England warns on UK financial stability

London: The Bank of England on Wednesday warned of risks to UK financial stability from increased geopolitical tensions, including fallout from US President Donald Trump’s tariffs.

In its latest half-year report on financial stability, the central bank said “the global risk environment has deteriorated, and uncertainty has intensified”.

It added that “global risks are particularly relevant to UK financial stability” owing to the country’s “large financial sector”.

On tariffs, which threaten a renewed spike to inflation, the bank said “several risks associated with the fragmentation of global trade in goods, and financial markets, have intensified”.

“A major shift in the nature and predictability of global trading arrangements could harm financial stability by depressing growth,” it said.

Markets are pricing in the possibility of more cuts to interest rates this year in Britain and the United States as Trump’s tariffs increase the chance of recession, according to economists.

Britain has been hit by a 10 percent US tariff, half the level imposed on imports into the United States from the European Union.

The BoE added in its report that “geopolitical tensions, and risks associated with sovereign debt pressures globally, have risen”. 

“As the UK is an open economy with a large financial sector, global risks are particularly relevant to UK financial stability,” it emphasised.

The bank’s Financial Policy Committee, which produced the report yesterday, judged however “that the UK banking system has the capacity to support households and businesses, even if economic and financial conditions were to be substantially worse than expected”.

It said the UK banking system, whose biggest retail lenders include HSBC and Barclays, “remained well capitalised” with “high levels of liquidity”.

The bank referred also to “an environment of heightened risk of cyberattacks” that “could disrupt the supply of financial services to UK households and businesses”.