Bank of England: Current nature of global trade could harm financial stability

Coming off the back of the Financial Policy Committee (FPC) meetings, the Bank also cautioned that the tariffs could lead to a reduction in global cooperation, which could in turn reduce resilience. The committee stated: "As the UK is an open economy with a large financial sector, global risks are particularly relevant to UK financial stability."

These warnings came just hours before the Trump White House announced a 90-day pause for nations hit by higher US tariffs, with a 10% levy to be imposed on all countries – except for China. Additionally, the 25% rate for aluminium, steel and cars entering the US will remain in place.

Global markets surged following the announcement in one of the biggest gains since the Second World War, with the S&P 500 index soaring by 9.5% – though the index is still below where it was when the tariffs were announced last week.

The FTSE 100 index, meanwhile, is on track for its best day since 2020. Reflecting on this, Hargreaves Lansdown’s senior equity analyst Matt Britzman said: "The White House has finally seen some sense and given a whole host of countries a 90-day pause, with reciprocal tariffs immediately lowered to 10%, while isolating China in a tense battle.

"Was this Trump caving to pressure or his master plan all along? Who knows, but markets ripped on the news with the S&P 500 posting its 9th best day in history.

"We still don’t know if this tariff strategy is going to do more harm than good, and this should not be confused with a resolution to the underlying impact on areas like inflation and global growth.

"But it does give a host of countries a chance to come to the table and barter for a deal, while offering companies some much-needed time to make whatever supply chain adjustments they can.

"What this means for the EU is still unclear, but given countermeasures were already declared it could find itself on Trump’s naughty list. As ever, we await more clarity."

Banking system has capacity to support households and businesses
Despite the current economic headwinds, the FPC said it believes the UK banking system has the capacity to support households and businesses – with both households and corporate borrowers remaining resilient in aggregate.

It did go on to say that global developments pose additional risks – including for some highly leveraged corporate borrowers relying on market-based finance.

Beyond the current economic situation, the FPC also discussed its approach to recent requests from the Chancellor for regulators to support growth.

In response, it said: "The FPC will focus on supporting long-term productivity growth, seeking to identify areas where the financial sector could better support real economy activity in terms of the vital services that the sector provides. Robust prudential standards play a crucial role in promoting sustainable growth across financial cycles."