Trump's trade war has left the world more vulnerable to a financial crisis, Bank of England warns, with severe economic shocks now more likely

Donald Trump’s trade war has left the world more vulnerable to a financial crisis, the Bank of England warned today.

Severe economic shocks are more likely after steep tariffs were imposed this morning, officials said.

A report found that Trump’s move would ‘reduce the resilience of the financial system’ and ‘harm financial stability by depressing growth’.

The analysis by the Bank’s Financial Policy Committee, led by Governor Andrew Bailey, said the ‘global risk environment has deteriorated, and uncertainty has intensified’ since Trump’s so-called Liberation Day on April 2.

And after a brutal sell off that has wiped more than £8trillion off stock markets, there was a ‘risk of further sharp corrections’, the report said.

The UK’s status as an ‘open economy with a large financial sector’ means the country was particularly exposed to the meltdown sparked by Trump’s tariffs.

The Bank of England’s stark warning was published amid an intensifying trade war that has sent shockwaves through global markets.

A tit-for-tat between China and the US escalated dramatically on Wednesday when Beijing said it would impose tariffs of 84 per cent on American imports, as it slammed Trump’s policy as ‘reckless’.

That came after Trump slapped a 104 per cent import tax on Chinese goods arriving in the US, stepping up a trade war between the world’s two largest economies.

‘A major shift in the nature and predictability of global trading arrangements could harm financial stability by depressing growth,’ the report said.

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‘A further risk was a reduction in global co-operation in tackling global challenges and shocks, which could reduce the resilience of the financial system.’

‘The probability of adverse events and the potential severity of their impact has risen,’ it added.

And as US bond yields soared yesterday, the committee also raised its long-standing concerns about risks posed by high public debt levels.

‘Risks associated with debt sustainability concerns, including sharp increases in government bond yields, could crystalise relatively quickly, particularly if accompanied by rapid capital outflows,’ the report said.

But despite the threats to global financial stability, officials found that UK banks were resilient enough to sustain households and business borrowers even if economic and financial conditions turn out to be substantially worse than feared.

They added that increased global tensions upped the risk of cyber attacks, and that the use of AI could amplify shocks to the financial system.