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The Bank of England has warned that the financial markets can endure “a further sharp correction” even after the steep sale caused by Donald Trump’s announcement of comprehensive fees last week.
Officials at the Central Bank on Wednesday said that the “probability of adverse events” had increased and the UK open economy was particularly exposed to the unrest of the financial market that came from the US president’s trade war.
“The global risk environment has worsened, and uncertainty has intensified. The probability of lateral events and the potential severity of their impact has increased,” the BOE financial policy committee said after its quarter meeting.
“The risk of further sharp correction that was stimulated had increased due to global developments,” BOE said, adding that the risk premium remained “relatively close in historical terms”. She added that “a major shift in the nature and predictability of global trading arrangements can damage financial stability by depression.”
Comments came after the so -called Trump reciprocal fees came into force at midnight in Washington on Wednesday, and as global shares continued to trade lower, joined by government bonds led by a US treasury sale.
The sale was reflected in the United Kingdom, where government bonds have been under pressure in recent months due to concerns about public finances in the United Kingdom.
The yields in 30-year-old Gilts climbed to just over 5.5 percent on Wednesday morning, exceeding an early high-high decades in January to trade in the last level in 1998.
The yield in the 10-year gilding, which moves in the opposite way to prices, also advanced, trading at 4.67 percent, while the pound fell against the euro.
Gilts were being affected by the strict effects of a narrative “America” sold that runs American wealth markets, said James Smith, a UK economist in Ing. This was partly because the gilts are generally sensitive to movements in US treasures, he said.
Moreover, “there are concerns about the large amount of release over the next 12 months and the deficit set up in the UK,” Smith added. “There are already some fiscal concerns and in cases like this that can make the market gilded in the UK more vulnerable.”
US reciprocal tariffs include a 104 percent tax in China that will reduce trade among the two largest economies in the world and already led to Beijing’s Revenge of Import Revenge.
Boe warned that increased levels of government borrowing left the financial system tangible from the “sharp increases in government bond yields that” can crystallize relatively quickly, especially if accompanied by rapid capital outputs “.
However, the Central Bank said that defensive funds had so far been able to cope with the sharp declines in the markets, with many looking for their investment portfolios before announcing Trump’s tariffs last week.
“While the margin calls facing the funds after April 2 had been important, they had so far been able to meet them without taking actions that would further strengthen the liquidity of the market,” Boe said.
Banks have asked the defense fund customers to raise more money as security for their loans due to the decline in their properties, leading to the largest margin calls since Pandemia Covid, the Financial Times reported last week.
Failure of a margin call can cause a negative return loop, where protective funds are forced to sell assets to ensure liquidity, which can lead to further decline in the market.
But the FPC said the de-rats before April 2 had meant some protective funds “were less influenced by the instability of subsequent prices”, adding that markets “remained regular” and there was “no evidence of stress or amplification in non-bank financial institutions active in the United Kingdom markets”.
British banks “remained well capitalized and had high levels of liquidity,” BOE said, adding that lenders “reported that the high demand of corporate loans had fallen, while availability remained widely unchanged.”
But the Central Bank said “a decrease in global cooperation … can reduce resistance” and showed specific risks in debt companies and protective funds using high levels of leverage in their market market market.
The debt used by trade funds for trade markets in the United Kingdom Bonds markets had increased from £ 4 billion at the beginning of last year to £ 61 billion in March, “with most of the borrowing focused on a small number of funds,” BOE said.
