Financial Stability Report considers continued geopolitical risk and uncertainty

The BoE has published the Financial Policy Committee’s latest Financial Stability Report.

The FPC found that risks and uncertainty associated with geopolitical tensions, global fragmentation of trade and financial markets, and pressures on sovereign debt markets remain high, with some geopolitical risks having crystallised since the last report.

The report notes that the US announcements in April 2025 on trade policy, and subsequent responses from other jurisdictions, were followed by sharp decreases in valuations across many financial asset classes, including advanced economy government bonds and the US dollar.

In some markets, risk sentiment recovered followed the pause in the implementation of higher trade tariffs, but 30-year government bond prices and the US dollar remain at or around multi-year lows, and correlations with risky asset prices have shifted from historical norms.

In the UK, household and corporate borrowers remain resilient on the whole, with the banking system remaining in a strong position to support households and businesses, even if economic, financial and business conditions became substantially worse than expected.