The Bank of England has issued a stark warning as US President Donald Trump’s latest round of tariffs takes effect. The Central Bank’s Financial Policy Committee (FPC) has warned that the global tariffs imposed on trade could severely rock the UK’s financial stability, which could have wider negative impact on the UK economy.
In its latest report, the FCP said the “global risk environment” had “deteriorated” and that uncertainty had “intensified”. It continued: “The probability of adverse events, and the potential severity of their impact, have risen.”
Last week, a 10% “baseline” trade tariff came into effect, as well as a raft of global tariffs ranging from 11% to 50% on all imports from 60 countries he dubbed the “worst offenders” for he considers unfair trade practices.
Several countries have been hit particularly hard – including China – which is home to the world’s second-largest economy. Other countries on Trump’s “worst offenders” list include Cambodia (now under a 49% tariff), Vietnam (46%) and India (26%).
Trump coined it “liberation day”, with the move almost equivalent to throwing a grenade into the centre of some of the world’s biggest economies. The Bank of England’s judgement comes as Trump imposed further tariffs on China today. Today, a monumental 104% tariff was placed on the country’s imports – which is the highest level for any country. In retaliation, China announced an 84% tariff on US goods.
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The FCP also noted that the dramatic shift in global trade arrangements “could “harm financial stability by depressing growth” in the world’s economy. As the prospect of an all-out global trade war grows, the FPC also warned of reduced international cooperation. These risks are “particularly relevant” to the UK because it is an open economy with a large financial sector.
The committee said: “A major shift in the nature and predictability of global trading arrangements could harm financial stability by depressing growth.”
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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On Tuesday, Trump accepted the fallout had been “somewhat explosive” but said that money had been “pouring in” from the new tariffs so far. According to the Central Bank, household borrowers in the UK, such as people with mortgages and businesses with loans, have remained resilient so far.
The FCP stated that the UK banking system was “well capitalised” and could support households and businesses “even if economic and financial conditions were to be substantially worse than expected.” However, some companies, such as those backed by private equity, are more vulnerable to developments.
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