The Bank of England on Wednesday said the Middle East war had caused “a substantial negative supply shock to the global economy”, increasing risks to the financial system.
Following a surge to oil prices that is set to push up overall inflation, the BoE said the fallout will also weigh on economic growth and tighten financial conditions, such as restricted lending by banks.
“Adverse impacts on the global macroeconomy increase the likelihood that multiple vulnerabilities could crystallise at the same time, amplifying their effect on financial stability,” the BoE said in a quarterly update on identifying risks to financial stability.
In its previous Financial Policy Committee report in December, the BoE identified risks posed by an overvalued AI sector and elevated government debt.