LONDON

The Bank of England on Wednesday issued a warning about the global economic outlook, citing the escalating risks posed by US President Donald Trump’s sweeping tariff policies.

The Bank’s Financial Policy Committee (FPC) expressed concern that these trade tensions are increasing the likelihood of "severe shocks" to the financial system, putting global growth at risk.

The FPC pointed to a significant deterioration in the global risk environment since its last assessment in November.

The committee highlighted that recent tariff announcements from the US had led to a "material increase in risks to global growth" and heightened inflationary pressures.

The ripple effects of the tariffs have already begun to impact investor confidence, with the FPC warning of a potential "further sharp correction" in financial markets.

This correction could put additional stress on indebted companies and create difficulties for governments in borrowing and refinancing their debt.

A particular concern for the Bank is the rising government bond yields – the interest rates governments pay on their debt – which could further reduce their ability to respond to future economic shocks.

US government bonds, considered a safe haven for investors, have seen a dramatic sell-off since Trump’s latest round of tariffs on multiple countries was announced.

The FPC noted that this shift in global trade dynamics might also erode international cooperation, making it harder to tackle global challenges and potentially weakening the resilience of financial systems.

The bank also highlighted the broader geopolitical risks, noting that high tensions could lead to an increase in cyberattacks, which would amplify existing financial stresses and disrupt payments and financial services, including to UK households and businesses.