Trade ructions could rock financial stability by lowering growth, the Bank of England warned Wednesday as U.S. President Donald Trump’s latest round of tariffs take effect.
The global risk environment has deteriorated and uncertainty has intensified, the central bank’s Financial Policy Committee (FPC) said in a record of two meetings held over the past week.
As the prospect of an all-out global trade war grows, the FPC also warned of reduced international cooperation. It highlighted the U.K.’s “open economy with a large financial sector,” meaning that “global risks are particularly relevant to UK financial stability.”
“The probability of adverse events, and the potential severity of their impact, has risen,” the committee said.
“A major shift in the nature and predictability of global trading arrangements could harm financial stability by depressing growth,” it added.
Trump’s additional “reciprocal” tariffs came into force overnight, following days of market volatility in anticipation. The FPC said markets were orderly, despite the exceptionally high volumes — although noted the sharp fall in prices of global equities, risky corporate credit and commodities, and warned the risk of further “sharp corrections” remains “high.”
Still, it said the U.K. banking system is well capitalized and would be able to support households and businesses “even if economic and financial conditions were to be substantially worse than expected.”
However, companies relying on market-based finance face risks from turbulent conditions, the FPC cautioned.
It also warned that growing geopolitical tensions heighten the risk of cyber-attacks, which could disrupt the supply of financial services to U.K. households and businesses.
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