London (Parliament Politics Magazine) – The Bank of England highlighted rising trade barriers and financial uncertainty as threats to growth and inflation, though UK banks are well-capable. Starting in 2025, stress tests will be conducted every two years to focus on broader financial vulnerabilities.
Rising global trade barriers pose a threat to economic growth and the UK’s financial stability, the Bank of England warned today.
Such barriers may lead to market turbulence and drive up borrowing costs for businesses and consumers.
The BoE pointed out that disruption to cross-border capital flows and lessened risk diversification could impact the financial system without directly mentioning Donald Trump’s election.
In its half-yearly report, the Bank of England stated that reduced international policy cooperation could slow efforts to improve the financial system’s resilience and its ability to cope with future shocks.
When asked about the potential impact of a second Trump presidency, Bailey, governor of BoE, reiterated his position that he wanted to assess the policies the Trump administration would implement.
As reported by Reuters, Bailey said,
We are seeing an increased risk of global fragmentation. But I would say this: there are quite a lot of causes of that, and I don’t think it’s right to pin it on one particular event.
Although UK households, businesses, and banks appeared stable, the BoE report highlighted that Britain’s financial sector faced risks “particularly relevant” to the openness of the UK economy.
Global public debt and market instability were flagged as significant issues in the Financial Stability Report, with the BoE warning that “uncertainty around, and risks to, the outlook have increased.”
Finance Minister Rachel Reeves accused the central bank of hindering growth with excessive regulations, but Bailey responded, stating,
“Put simply, there is not a trade-off between financial stability and growth.”
However, he acknowledged that rule application involves choices, pointing to the Bank of England’s shift to biennial bank health tests as a measure to support competitiveness in the industry.
Mr. Bailey assessed the significance of establishing minimum international financial standards after the Nov. 5 U.S. election.
According to the Bank of England, financial market valuations and risk premia are “vulnerable to a sharp correction” due to ongoing risks to growth, inflation, and uncertainty around interest rates.
The BoE warned,
“Such a correction could be amplified by long-standing vulnerabilities in market-based finance” and could push up borrowing costs for UK households and businesses.”
From the coming year 2025, the central bank will carry out full stress tests every two years, easing the administrative burden on lenders and enabling the BoE’s focus on other financial risks.
During the years without full stress tests, the Bank of England will conduct less detailed desk-based stress tests when needed.