Bank of England Warns of Financial Risks Despite Tariff Pauses

The Bank of England said global financial markets are still in jeopardy despite easing tariff tensions.

“Risks and uncertainty associated with geopolitical tensions, global fragmentation of trade and financial markets, and pressures on sovereign debt markets are still elevated,” the United Kingdom’s central bank said in a report issued Wednesday (July 9).

The mid-year assessment report by the Financial Policy Committee said that while risk sentiment in some markets recovered when tariffs were paused, 30-year government bond prices and the U.S. dollar remain at or near multi-year lows.

“Risky asset valuations, which had been stretched prior to April, have subsequently returned to previous levels, despite the high level of uncertainty that persists,” the report said. “Therefore, the risk of sharp falls in risky asset prices, abrupt shifts in asset allocation and a more prolonged breakdown in historical correlations remains high.”

The U.S. dollar — which had weakened before the tariff announcements in April — has only depreciated since then, according to the report. The rise in U.S. Treasury yields and depreciation of the dollar are noteworthy because in past times of market stress, U.S. Treasury yields have tended to fall, and the U.S. dollar has typically strengthened.

“Market participants should consider the implications of further shifts in these historical correlations when managing risk,” the report said. “The recent episode highlights that the interconnectedness of global financial markets can mean stress from one market can move quickly to others. In this environment, significant changes in foreign investor currency hedging may also create extra pressure on funding markets.”

The report came one day after the U.K.’s Office for Budget Responsibility characterized the country’s public finances as being in a “relatively vulnerable position” in the wake of the pandemic and that the government had since failed to curb spending, Reuters reported Wednesday.

Meanwhile, PYMNTS wrote Wednesday that new consumer spending data from May suggested that the “specter of tariffs had pushed consumers to buy bigger ticket items, such as cars, to get under the wire, so to speak.”

The Federal Reserve found that total credit increased $5.1 billion in May, down from a nearly $17 billion surge in April. Non-revolving credit, which includes auto loans and student loans, was responsible for the bump, adding 2.8%.

The post Bank of England Warns of Financial Risks Despite Tariff Pauses appeared first on PYMNTS.com.