The Bank of England's Financial Policy Committee (FPC) stated that the UK banking system is equipped to support households and businesses despite a deteriorated global risk environment and intensified uncertainty. The FPC highlighted a rise in the probability of adverse events and their potential severity.
This assessment follows US tariff announcements, which have led to retaliatory measures, including from China. The shift in global trade arrangements could harm financial stability by depressing global economic growth. Such risks are particularly relevant to the UK due to its open economy and large financial sector.
While UK household borrowers and businesses with loans have shown resilience, some companies, particularly those backed by private equity, are more vulnerable to global developments. Since the tariff announcements, global stocks, commodities, and risky corporate credit prices have dropped sharply, and the US dollar's value has declined, causing turmoil in global financial markets amid trade war fears and US recession threats.
Market volatility has risen significantly with exceptionally high trade volumes, but the market continues to function in an orderly way. The risk of further sharp asset price declines remains high. The FPC believes the UK banking system is strong enough to support households and businesses even under worsened economic conditions. Business insolvencies remained slightly higher but still below recent peaks, primarily affecting small firms with minimal bank debt. Overall profits edged lower in 2024 after strong growth in 2023.