The Bank of England has warned that escalating trade wars, geopolitical instability, and mounting global debt levels are amplifying risks to the UK’s financial system.
Officials noted the country’s vulnerability due to its “open economy with a large financial sector,” according to the Bank’s latest Financial Stability Report.
Andrew Bailey, the Bank’s governor, highlighted the uncertain environment, stating, “We are living in a world that is more uncertain on a number of fronts. We are watching these risks very carefully.”
Key concerns include the fragmentation of global trade as conflicts in Ukraine and the Middle East intensify and as the US considers imposing tariffs on countries such as China, Mexico, and Canada. Rising government debt in nations like the UK and the US also poses significant vulnerabilities.
The report identified increasing risks outside traditional banking, particularly in the shadow banking sector, encompassing private equity firms and hedge funds. The sector has been linked to market crises, such as the 2022 pension fund turmoil and the Archegos collapse earlier that year.
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