The Bank of England warned that new trade tariffs could negatively affect global economic growth and increase uncertainty about inflation, which in turn would increase volatility in financial markets.
The central bank also warned that the financial system could take a hit against the background of disruption of cross-border capital flows and a decrease in the ability to diversify risks.
"Although UK households, businesses and banks appear to be in good shape, the country's financial sector faced risks that were "particularly relevant" given the openness of the UK economy," the Bank of England said, adding that high levels of government debt in many economies of the world also pose a threat.
The Bank of England also reiterated that risk assessments and premiums in financial markets are "vulnerable to a sharp correction" due to risks to growth and inflation, as well as uncertainty about interest rates. The central bank added that its latest stability tests of British banks have shown that they are well capitalized and have a high level of liquidity.
Going forward, the central bank planned to carry out full stress tests once every two years starting in 2025, reducing the administrative strain on lenders and allowing the Bank of England to focus on other potential financial risks.