The Bank of England has warned that the ongoing Iran conflict is significantly heightening risks to global financial stability, citing a “substantial negative supply shock” driven by disruptions in energy markets.
According to the central bank, the war has disrupted oil and gas flows—particularly through the strategically critical Strait of Hormuz—leading to sharp increases in energy prices and borrowing costs. In the United Kingdom, natural gas prices have surged by more than 70%, while petrol prices have risen by around 10%, adding pressure on households and businesses.
The Bank also flagged rising vulnerabilities across financial markets, including stress in government debt markets, private credit sectors, and inflated valuations in US technology firms heavily linked to artificial intelligence. Higher energy costs and supply chain disruptions are expected to further strain these sectors.
Officials warned that mortgage lending conditions in the UK have tightened, with borrowing becoming more expensive and less accessible. Many households are expected to face increased repayment pressures in the coming years, potentially weakening consumer finances.
The central bank also pointed to signs of fragility in financial systems, including heightened hedge fund activity in debt markets and isolated defaults, underlining broader systemic risks.
Despite these concerns, the Bank of England noted that UK banks, businesses, and households remain relatively resilient for now. However, it cautioned that prolonged geopolitical instability and sustained energy shocks could amplify financial stress in the global economy.
The warning comes amid wider concerns among global policymakers that the Iran conflict could trigger inflationary pressures, disrupt supply chains, and slow economic growth across major economies.