Bank of England Warns Trade Barriers Threaten Global Stability

The Bank of England has raised alarms over escalating trade restrictions, warning they pose significant risks to global economic stability and inflation.

These barriers are driving up borrowing costs for households and businesses, adding pressure to already volatile financial markets.

The BoE highlighted a worrying decline in international financial cooperation, which it says could weaken the global system’s ability to handle future crises. Governor Andrew Bailey emphasized the growing threat of economic fragmentation, particularly for the UK, a nation heavily reliant on trade. While banks and households remain stable for now, the report flagged vulnerabilities like soaring public debt and unpredictable markets.

Tensions have also surfaced between the government and the BoE over regulation. Finance Minister Rachel Reeves accused the central bank of stifling growth, but Bailey dismissed this, insisting financial stability is essential. Still, the BoE plans to reduce the frequency of stress tests for banks starting in 2025.

The report also warned of market volatility fueled by trade uncertainties and inflation concerns. Hedge funds and non-bank financial entities were identified as potential weak points, with the risk of sudden asset sell-offs amplifying instability. Despite these challenges, UK banks are well-capitalized and prepared to handle shocks, supported by strategic adjustments in oversight.