The Bank of England has issued a major warning that the financial system is facing increasing risks of “large, frequent and potentially overlapping shocks” amid the volatility from the Middle East war and ongoing market risks.
In the latest meeting of the central bank’s Financial Policy Committee warned the implications of the conflict was “likely to interact with vulnerabilities” in the UK economy.
“The financial system has been resilient so far. However, the shock will weigh on growth, increase inflation and tighten financial conditions,” the Bank said.
The committee listed ongoing risks to the financial system as the “stretched” valuations of artificial intelligence stocks and “risky credit markets, notably in private credit”.
“The global environment more broadly was materially more unpredictable as a result of the conflict, increasing the likelihood of large, frequent and potentially overlapping shocks, and episodes of intense market volatility.”
Bank of England: ‘UK economic outlook has deteriorated’
Prime Minister Sir Keir Starmer warned on Wednesday that he “had to level” with the British public that the impact of the current turmoil in the economy “would not be easy”.
It comes after senior leaders from global energy companies and retailers warned that attacks on energy infrastructure in Iran, Qatar and Kuwait, as well as the blocking of the Strait of Hormuz, could set global economies up for a major supply crisis.
The Bank of England said on the domestic front the “economic outlook has deteriorated, increasing pressure on UK households and businesses”.
Rachel Reeves has confirmed an energy support package that would be targeted at “those who need it most” as she took a jab at the universal support package rolled out by the Conservatives that cost around £40bn.
But it comes as spiralling oil and gas prices have already led to major spike in the Ofgem energy price cap, which is set to leap 18 per cent after June.
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