Key Points
- Bank of England says war has “boosted threats to global financial stability”
- Conflict described as “substantial negative supply shock”
- Energy disruption driving inflation and tighter financial conditions
- Prolonged war could amplify systemic vulnerabilities
LONDON: The Bank of England warned on Wednesday that the Iran war has “boosted threats to global financial stability,” calling it a “substantial negative supply shock” as energy disruptions ripple across markets.
The central bank said rising oil and gas prices are tightening financial conditions, pushing up borrowing costs for households and businesses and adding to inflationary pressures.
It noted that increased market volatility and weaker risk sentiment are exposing existing fragilities in the financial system, including in credit markets and leveraged institutions.
The Bank cautioned that a prolonged conflict could deepen the shock, amplifying vulnerabilities and raising the risk of broader economic instability across major economies.
The assessment comes amid heightened uncertainty in global energy markets, with supply routes under strain and price swings feeding directly into inflation expectations and monetary policy outlooks across advanced economies.
Analysts say central banks are likely to remain cautious on interest rate cuts as geopolitical risks keep inflation elevated, complicating efforts to stabilise growth.
The warning also reflects broader concerns among policymakers that geopolitical shocks are increasingly interacting with financial system weaknesses, raising the likelihood of more persistent and prolonged market disruptions.
