Bank of England sees global
financial risks after Trump victory
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[November 30, 2016]
By David Milliken and Huw Jones
LONDON
(Reuters) - Donald Trump's victory in the U.S. presidential election has
increased the threats to the world economy from higher interest rates
and less trade, the Bank of England said on Wednesday.
The BoE also pointed to potential dangers from rapid Chinese credit
growth or a disorganized British departure from the European Union in a
half-yearly assessment of risks to Britain's financial system.
BoE Governor Mark Carney highlighted a big rise in U.S. market interest
rates since Trump's victory, which the Bank said could be a precursor to
a destabilizing sharp move higher in global government borrowing costs
from previous record lows.
Yields on U.S. 10-year government bonds <US10YT=RR> - which influence
borrowing costs globally - are on track for their biggest monthly rise
since December 2009 following Trump's unexpected victory on Nov. 8.
"The U.S. election has reinforced existing vulnerabilities," the central
bank said in its report. "The rise in advanced economy sovereign yields,
coupled with risks of reduced global trade, has reinforced the
vulnerabilities associated with those emerging market economies with
high levels of debt."
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Trump has said he wants to boost infrastructure spending and cut taxes.
This could boost U.S. economic growth but also raises the prospect of
higher U.S. government borrowing costs and inflation globally when many
economies are still struggling to overcome the effects of the 2007-09
global financial crisis.
For rich economies, a rapid rise in bond yields from near-zero levels
could hurt bank lending and lead to market instability, the BoE said.
Carney said any new protectionist U.S. trade policies could throw "sand
in the gears" of the global economy, with knock-on effects for Britain.
Trump has said he will scrap a planned trade deal with Asian economies
to bolster U.S. job creation and suggested that he could pull the United
States out of the World Trade Organisation if its rules stopped him
renegotiating U.S. terms of trade.
"There is this possibility that the slowdown in the growth in world
trade, which we have seen over the past few years, accelerates because
of discrete policy initiatives potentially from the world's largest
economy," he told a news conference.
BREXIT WORRIES
Aftershocks from Trump's election were far from the BoE's only concern.
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![](../images/113016PICS/busine11.jpg)
U.S. President-elect Donald Trump boards his aircraft in West Palm
Beach, Florida, U.S., November 27, 2016, as he makes his way to New
York after spending the Thanksgiving holiday with family.
REUTERS/Joe Skipper
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Although Britain's economy has performed better than the BoE had
expected immediately after the Brexit referendum, the central bank said
some types of commercial real estate could be overvalued, even after big
price falls.
Britain's government expects to start two years of formal talks to leave
the EU after March, and Carney repeated his view that a lack of clarity
about its priorities could push banks to move operations out of the
country prematurely.
Securing a transitional agreement before the financial services industry
feels the full effect of Brexit would benefit both Britain and
businesses elsewhere in the EU, Carney said.
"It is important to recognize that the United Kingdom is effectively the
investment banker for Europe," he said, explaining that most of the EU's
corporate finance needs were met by British-based firms.
"It's absolutely in the interest of the European Union that there is an
orderly transition and that there is continual access to those
services."
The BoE also saw other potential threats, including "extraordinary"
credit growth in China, Britain's large current account deficit and
long-standing worries about the health of the banking system in euro
zone countries such as Italy.
Separately, the BoE also released its annual bank stress tests, which
Royal Bank of Scotland failed, requiring it to raise extra capital.
(Editing by William Schomberg and Catherine Evans)
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