The Bank of England has warned that the full fallout from Donald Trump’s tariffs may still be yet to come.
The UK economy was already struggling, having unexpectedly shrunk by 0.1% in January this year, before the US president chose to put a 10% tariff on all British goods.
Trump also announced a 25% global levy on cars and steel products as part of his so-called “Liberation Day”.
Shortly after the tariffs came into effect, the FTSE 100 – the index of the top performing companies in the UK – fell sharply.
It continued to fall after China slapped a reciprocal 34% rate on US goods, and Trump escalated tariffs against Chinese imports up to 104%.
The FTSE 100 slumped once more after China announced it would impose 84% retaliatory trade tariffs on the US on Wednesday.
Trump also claimed further tariffs on pharmaceuticals “very shortly”, despite rising fears of a global recession.
The Bank of England said today that British growth could be severely impacted by Trump’s tariffs as the likelihood of an international trade war grows.
The Bank’s Financial Policy Committee (FPC) said on Wednesday: “The global risk environment has deteriorated and uncertainty has intensified.
“The probability of adverse events, and the potential severity of their impact, have risen.
“A major shift in the nature and predictability of global trading arrangements could harm financial stability by depressing growth.”
The Bank highlighted the UK’s “open economy with a large financial sector” and said this means “global risks are particularly relevant to UK financial stability.”
The FPC warned against looking inward, too, despite the campaign to “buy British” currently backed by the Liberal Democrats and the Conservatives.
The Bank warned cyber attacks are also more likely amid geopolitical tensions, which could impact financial services.
It also suggested there could be more issues on the horizon especially for corporate borrowers.
“Global developments pose additional risks, particularly for some highly leveraged corporate borrowers relying on market-based finance,” it warned.
However, it was not all bad news.
The UK banking system is well-capitalised, according to the Bank, and so it should be able to support households and businesses “even if economic and financial conditions were to be substantially worse than expected”.
It said: “UK household and corporate borrowers have remained resilient in aggregate [overall].”
The Bank’s warning comes after investors at JP Morgan estimated there was a 60% chance of the world economy slipping into a recession by year-end.
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