The Bank of England warns the Middle East conflict poses a severe risk to UK financial stability, citing a major global supply shock and rising inflation pressures.
LONDON: The Bank of England has warned that the ongoing war in the Middle East represents a severe risk to the UK’s financial stability.
In a quarterly update on Wednesday, the central bank stated the conflict has caused “a substantial negative supply shock to the global economy”, increasing risks to the financial system.
It said the resulting surge in oil prices is set to push up overall inflation while also weighing on economic growth and tightening financial conditions, such as restricting bank lending.
“The conflict has made the global environment materially more unpredictable and followed a period in which global risks were already elevated,” the BoE’s report noted.
It warned that adverse impacts on the global economy increase the likelihood that multiple financial vulnerabilities could crystallise simultaneously, amplifying their effect on stability.
The central bank specifically cautioned that the fallout could impact “the provision of vital financial services to UK households and businesses”.
However, it maintained its assessment that the UK banking system has the capacity to support households and businesses even if economic and financial conditions deteriorate substantially.
This latest warning follows the BoE’s previous Financial Policy Committee report in December, which had identified risks from an overvalued AI sector and elevated government debt.
Ahead of the BoE’s update, British Prime Minister Keir Starmer sought to reassure the public over the potential financial fallout from the conflict.
“No matter how fierce this storm, we are well-placed to weather it and… we have a long-term plan to emerge from it a stronger and more secure nation,” Starmer told a press conference.
Finance minister Rachel Reeves also commented, stating the Labour government was “preparing for all eventualities” as pressure mounts to cut fuel duty.
“If I promised that I could alleviate every price increase for every person, I wouldn’t be telling the truth, because all that you will be doing if you do that is pushing up inflation, interest rates and taxes in the future,” she added.
