The US election outcome has “reinforced existing vulnerabilities” in the financial system, the Bank of England has warned, adding that the outlook for financial stability in the UK remains challenging.
The BoE said on Wednesday that vulnerabilities that were already considered “elevated” have worsened since its last report on financial stability in July, in the weeks following the UK’s vote to leave the EU.
The election of Donald Trump as US president has pushed up yields on sovereign bonds from advanced economies, while also weighing on expectations around global trade.
“The US election has reinforced existing vulnerabilities,” said the BoE in its twice-yearly Financial Stability Report. “Following the US election, there have been significant changes in global asset prices. Expectations of expansionary US fiscal policy have contributed to an increase in advanced economy sovereign yields, reversing much or all of their falls observed earlier in the year.”
UK banks are particularly exposed to China, Hong Kong and emerging markets — around 20 per cent of UK banks’ total assets. The report highlighted the difficulty of emerging markets servicing their debts in the new environment.
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