Trade war has heightened risks to financial stability, says Bank of England

9th Apr 2025 12:32

(Sharecast News) - Risks to global financial stability have increased because of the escalating trade war ignited by the US, according to the Bank of England on Wednesday.

Records of the Financial Policy Committee meetings over the past week show that policymakers see the overall risk environment having deteriorated, with severe shocks expected to be more likely in an era of weakening economic growth.

The FPC, which meets to identify risks to financial stability and agree policy actions to safeguard UK financial resilience, said that UK households and businesses remain resilient, with the banking system strong enough to withstand a period of stress. However, the risk of further sharp falls in market prices "remains high", the central 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," the FPC said.

The comments follow the announcement by the Trump administration of sweeping import tariffs on its trading partners on 2 April, which - along with the retaliatory duties imposed by other nations - has caused a mass sell-off across global equity markets and sharp increases in volatility over the past week.

"A further risk is a reduction in global co-operation, which could reduce resilience. Geopolitical tensions, and risks associated with sovereign debt pressures globally, have also risen," the report said.

Nevertheless, despite the additional risks, the FPC said it still believes 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".