Trump tariffs threaten global growth and raise risk of ‘severe shocks’, says Bank of England

Donald Trump’s sweeping tariffs have put global growth at risk, the Bank of England has warned, heaping pressure on government finances and increasing the likelihood of “severe shocks” to the financial system.

The Bank’s financial policy committee (FPC) said its global risk environment had deteriorated and “uncertainty had intensified” since its last update in November, with US tariff announcements contributing to a “material increase in risks to global growth” and inflation levels.

Those concerns have knocked investor confidence, and increased the risk of a “further sharp correction” in financial markets that could cause stress for indebted companies and make it harder for governments to borrow money and refinance their debts.

The Bank warned that higher government bond yields – effectively the interest rate countries pay on their debt – would “reduce their capacity to respond to future shocks”. Government bonds, including the traditionally safe haven US treasuries, have been undergoing a dramatic sell-off since Trump announced a fresh wave of tariffs on dozens of countries overnight.

The FPC said that a big shift in the nature and predictability of global trade could also reduce the likelihood of international cooperation, particularly in tackling global challenges and shocks, “which could reduce resilience of the financial systems”. Overall, “severe shocks are more likely”, the committee warned.

High geopolitical tensions would also have implications outside global trade, the FPC said, creating a heightened risk of cyber-attacks that could amplify other stresses and disrupt payments and financial services to UK households and businesses.

It said that since its last meeting in mid-November “global trade policy uncertainty had intensified and some risks had crystallised. The United States had made a wide range of tariff announcements on 2 April and some governments had responded with their own tariff announcement. This had contributed to a material increase in the risks to global growth and a weakening of the central outlook, as well as increased uncertainty over the outlook for inflation globally.”

The comments come after the German finance minister, Jörg Kukies, said on Wednesday that the country’s own economy was at risk of another recession as a result of the trade tensions.

Investment bank JP Morgan has also estimated that there was a 60% chance of the world economy entering recession by year-end.

However, the Bank of England has tried to ease some fears, assuring that financial markets were operating in an “orderly” fashion and that the UK banking system remained resilient.