**London**: The Bank of England is launching a stress test for the UK’s largest banks to assess their stability amidst rising global trade tensions and economic challenges, projecting significant declines in trade, GDP, and steep rises in inflation and interest rates.
The Bank of England is set to conduct a significant stress test aimed at assessing the resilience of the UK’s largest financial institutions amid escalating global trade tensions. This initiative comes in light of mounting concerns regarding the impact of former President Donald Trump’s tariff policies on international trade.
The exercise will involve the seven major banks and building societies in the UK: Barclays, HSBC, Lloyds Banking Group, Nationwide, NatWest, Santander UK, and Standard Chartered. During this test, these institutions will be evaluated on their ability to withstand a hypothetical scenario characterised by deteriorating global economic conditions, leading to a fragmentation of international trade.
In this scenario, the Bank of England has outlined a potential decline in global trade by 20 per cent, alongside a sharp increase in oil and gas prices reminiscent of the spikes following the Russian invasion of Ukraine in 2022. Additionally, the UK’s economic performance is expected to falter significantly, with projections indicating a contraction of 5 per cent in GDP. This would coincide with a steep rise in unemployment, which could potentially double, and inflation expected to reach 10 per cent. Furthermore, interest rates may soar to 8 per cent, resulting in an anticipated 28 per cent decline in house prices. On a global scale, GDP is forecasted to shrink by 2 per cent.
While the specific details regarding Trump’s involvement are not directly addressed in the stress test, the timing reflects ongoing concerns about the effects of his administration’s trade policies on the UK economy. Last week, the Bank of England issued a warning about the growing uncertainties in geopolitical and global trade policies, suggesting that these dynamics are likely to continue.
This stress test, conducted every two years, serves as a critical tool for ensuring that UK lenders are adequately prepared for potential economic shocks and can maintain stability in the face of external pressures.
Source: Noah Wire Services
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