UK Vulnerable To Borrowing Shock, Bank of England Warns

The Bank of England has warned that Britain remains vulnerable to a borrowing shock, intensifying pressure on Chancellor Rachel Reeves as she faces growing challenges in balancing the national budget. Szu Ping Chan reported the story for The Telegraph.

UK gilt yields climbed in step with rising US borrowing costs.

Policymakers noted that bond markets remain fragile, following a steep rise in government borrowing costs triggered by former President Donald Trump’s “Liberation Day” tariffs in April.

The Financial Policy Committee (FPC), chaired by Governor Andrew Bailey, said UK gilt yields had climbed in step with rising US borrowing costs.

Officials cautioned that market stress could have escalated into a crisis if Trump hadn’t paused the tariffs for 90 days.

“The recent episode highlights that the interconnectedness of global financial markets can mean stress from one market can move quickly to others,” the Bank said in its latest Financial Stability Report.

The FPC also issued a stark warning that Trump’s trade war could result in a “prolonged breakdown” of the global financial order.

The report added: “The risk of sharp falls in risky asset prices, abrupt shifts in asset allocation, and a more prolonged breakdown in historical correlations remains high.”