Bank of England Warns of Economic Risks Amid Middle East Conflict

The Bank of England has highlighted significant negative supply shocks to the global economy due to the ongoing conflict in the Middle East. According to RTHK, the central bank noted that the outlook of slowing economic growth, rising inflation, and increased borrowing costs heightens the risk of simultaneous disruptions in government bond markets, private credit, and valuations of major U.S. tech companies. In its quarterly report, the Financial Policy Committee of the Bank of England emphasized that the conflict has made the global environment more unpredictable, with already elevated global risk levels. The report suggests an increased likelihood of large-scale, frequent, and potentially overlapping shocks, along with periods of intense volatility. The Bank of England also pointed out that the UK government bond market is vulnerable to concentrated positions held by some hedge funds. A significant drop in stock markets could lead some institutions to sell off UK government bonds. Furthermore, the bank mentioned that if interest rate hikes materialize, by the end of 2028, 58% of mortgage holders might face higher repayment amounts. Although the rate increases might be moderate, the ongoing rise in mortgage rates and energy prices is expected to exert new financial pressures on households.