Bank of England Governor Andrew Bailey said on Tuesday that elevated levels of geopolitical uncertainty and global trade tensions are significant considerations for financial stability, underscoring how intertwined economic and political risks have become for policymakers.

Bailey told lawmakers that trade issues and the broader international risk environment pose challenges for central banks as they try to balance inflation control with support for growth and financial markets.

Bailey emphasised that while inflation remains a core focus, central banks must also remain vigilant about risks stemming from trade conflicts, commodity price swings and financial market stress.

His comments reflected broader concerns that central banks globally may need to recalibrate traditional frameworks to account for geopolitical shocks.

In currency markets, the Bank of England’s stance influenced sterling movements against major peers, particularly as traders balanced risk assets with safe-haven flows into gold and other protective instruments.

Bond yields and credit spreads were also sensitive to changing risk perceptions tied to geopolitical developments.

Bailey’s remarks underscored the interconnected nature of financial stability, monetary policy and global trade relations, emphasising that central banks cannot focus narrowly on inflation alone in a world of multifaceted risks.

Economists said that although central banks such as the BoE remain committed to price stability, they are increasingly factoring external risks into assessments of financial conditions, which could influence policy decisions as 2026 unfolds.

Source: Reuters.