Bank of England (BoE) Governor Andrew Bailey stated that geopolitical uncertainty is a significant consideration in the central bank’s assessment of financial stability, warning that markets may be underestimating the risks associated with global political tensions and institutional challenges, according to Reuters.

Bailey said the BoE is closely monitoring how markets respond to geopolitical shocks, noting that reactions so far have been more muted than expected. He also highlighted potential spillovers to the UK economy from any threat to the independence of the US Federal Reserve (Fed), while stressing his personal confidence in Fed Chair Jerome Powell.

Adding to the assessment, BoE Deputy Governor Dave Ramsden said core government Bond markets have shown limited volatility so far this year. Ramsden noted that Gilt, US Treasury and Eurozone Bond markets remain relatively stable, with Japanese government Bonds standing out as an exception.

Key takeaways

The level of geopolitical uncertainty is a big consideration for BoE on financial stability.

We worry considerably about how markets react to geopolitical risks, they have been more muted than we expected.

There are substantial potential spillovers to UK from any threat to Fed independence.

Powell is a friend of mine and a man of the utmost integrity.

Market reaction

GBP/USD remains sustained on Tuesday, gaining 0.40%on the day to 1.3480 at the time of writing.