The future of the UK economy is weaker and more uncertain due to President Trump’s tariffs and conflict in the Middle East, the Bank of England has said.
“The outlook for UK growth over the coming year is a little weaker and more uncertain,” the central bank said in its biannual health check of the UK’s financial system.
Economic and financial risks have increased since the last report was published in November, as global unpredictability continued after the announcement of country-specific tariffs on 2 April, the Bank’s Financial Stability Report said.
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These risks and uncertainty, as well as geopolitical tensions, like the wars in Ukraine and the Middle East, are “particularly relevant” to UK financial stability as an open economy with a large financial sector, it said.
Pressures on government borrowing costs are “still elevated” amid significant doubts over the global economic outlook.
Had a 90-day pause on tariffs not been announced, conditions could have worsened, the report added.
The chance of prices rising overall has also grown as tensions between Iran and Israel and the US threaten to push up energy prices.
Possible higher inflation in turn raises the prospect of more expensive borrowing from higher interest rates to bring down those price rises. This compounds the pressure on state borrowing costs.
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Mortgages
Borrowing costs for about 40% of mortgage holders are set to become costlier over the next three years as households refix to more expensive deals, affecting 3.6 million households, the Bank said.
Many homes have not refixed their mortgage since interest rates began to rise in 2021, meaning the full impact of higher rates has yet to filter through.
Those looking to get on the property ladder got a boost as the Bank said lenders could issue more loans deemed to be risky, meaning people could be able to borrow more.
Financial institutions can now have 15% of their new mortgages deemed risky every year, up from the current 9.7%.
Riskier mortgages are those with a loan value above 4.5 times the borrower’s income.
Be ‘prepared for shocks’
Despite the global and domestic economy concerns, the outlook for UK household and business resilience remained “strong”, the Bank said.
Investors, however, were warned that there could be “sharp falls in risky asset prices”, which include shares and currencies.
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If there are any vulnerabilities in non-bank lenders, it “could amplify such moves, potentially affecting the availability and cost of credit in the UK”.
“It is important that in their risk management, market participants [people involved in investing] are prepared for such shocks.”
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The steep market reaction following the tariff announcements in April “highlights that the interconnectedness of global financial markets can mean stress from one market can move quickly to others,” the report said.
Overall, though, “household and corporate borrowers remain resilient”, the Bank concluded.
The idea of a wealth tax has raised its head – yet again – as the government attempts to balance its books.
Downing Street refused to rule out a wealth tax after former Labour leader Lord Kinnock told Sky News he thinks the government should introduce one.
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Lord Kinnock calls for ‘wealth tax’
Sir Keir Starmer’s spokesman said: “The prime minister has repeatedly said those with the broadest shoulders should carry the largest burden.”
While there has never been a wealth tax in the UK, the notion was raised under Rishi Sunak after the COVID years – and rejected – and both Harold Wilson’s and James Callaghan’s Labour governments in the 1970s seriously considered implementing one.
Sky News looks at what a wealth tax is, how it could work in the UK, and which countries already have one.
Will Chancellor Rachel Reeves and Prime Minister Sir Keir Starmer impose a wealth tax? Pic: PA
What is a wealth tax?
A wealth tax is aimed at reducing economic inequality to redistribute wealth and to raise revenue.
It is a direct levy on all, or most of, an individual’s, household’s or business’s total net wealth, rather than their income.
The tax typically includes the total market value of assets, including savings, investments, property and other forms of wealth – minus a person’s debts.
Unlike capital gains tax, which is paid when an asset is sold at a profit, a wealth tax is normally an annual charge based on the value of assets owned, even if they are not sold.
A one-off wealth tax, often used after major crises, could also be an option to raise a substantial amount of revenue in one go.
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Wealth tax would be a ‘mistake’
How could it work in the UK?
Advocates of a UK wealth tax, including Lord Kinnock, have proposed an annual 2% tax on wealth above £10m.
Wealth tax campaign group Tax Justice UK has calculated this would affect about 20,000 people – fewer than 0.04% of the population – and raise £24bn a year.
Because of how few people would pay it, Tax Justice says that would make it easy for HMRC to collect the tax.
The group proposes people self-declare asset values, backed up by a compliance team at HMRC who could have a register of assets.
Which countries have or have had a wealth tax?
In 1990, 12 OECD (Organisation for Economic Co-operation and Development) countries had a net wealth tax, but just four have one now: Colombia, Norway, Spain and Switzerland.
France and Italy levy wealth taxes on selected assets.
Colombia
Since 2023, residents in the South American country are subject to tax on their worldwide wealth, but can exclude the value of their household up to 509m pesos (£92,500).
The tax is progressive, ranging from a 0.5% rate to 1.5% for the most wealthy until next year, then 1% for the wealthiest from 2027.
Bogota in Colombia, which has a wealth tax
Norway
There is a 0.525% municipal wealth tax for individuals with net wealth exceeding 1.7m kroner (about £125,000) or 3.52m kroner (£256,000) for spouses.
Norway also has a state wealth tax of 0.475% based on assets exceeding a net capital tax basis of 1.7m kroner (£125,000) or 3.52m kroner (£256,000) for spouses, and 0.575% for net wealth in excess of 20.7m kroner (£1.5m).
Norway has both a municipal and state wealth tax. Pic: Reuters
The maximum combined wealth tax rate is 1.1%.
The Norwegian Labour coalition government also increased dividend tax to 20% in 2023, and with the wealth tax, it prompted about 80 affluent business owners, with an estimated net worth of £40bn, to leave Norway.
Spain
Residents in Spain have to pay a progressive wealth tax on worldwide assets, with a €700,000 (£600,000) tax free allowance per person in most areas and homes up to €300,000 (£250,000) tax exempt.
Madrid in Spain. More than 12,000 multimillionaires have left the country since a wealth tax was increased in 2022. Pic: Reuters
The progressive rate goes from 0.2% for taxable income for assets of €167,129 (£144,000) up to 3.5% for taxable income of €10.6m (£9.146m) and above.
It has been reported that more than 12,000 multimillionaires have left Spain since the government introduced the higher levy at the end of 2022.
Switzerland
All of the country’s cantons (districts) have a net wealth tax based on a person’s taxable net worth – different to total net worth.
Zurich is Switzerland’s wealthiest city, and has its own wealth tax, as do other Swiss cantons. Pic: Reuters
It takes into account the balance of an individual’s worldwide gross assets, including bank account balances, bonds, shares, life insurances, cars, boats, properties, paintings, jewellery – minus debts.
Switzerland also works on a progressive rate, ranging from 0.3% to 0.5%, with a relatively low starting point at which people are taxed on their wealth, such as 50,000 CHF (£46,200) in several cantons.
The parents of survivors of the Southport attack have revealed the “untold stories” of how their “hero” children escaped.
Axel Rudakubana, 18, murdered Elsie Dot Stancombe, seven, Bebe King, six, and Alice da Silva Aguiar, nine, in what the chairman of the public inquiry Sir Adrian Fulford called “one of the most egregious crimes in our country’s history”.
Eight children were injured along with two adults at a Taylor Swift-themed class in the Merseyside seaside town on 29 July last year, while 15 others escaped without physical injuries.
The surviving victims and their families have been granted anonymity during the inquiry, with one girl referred to as C3. Her father was the first to give evidence at Liverpool Town Hall on Wednesday.
Alice da Silva Aguiar, Elsie Dot Stancombe and Bebe King were murdered in the attack
Reading a statement on behalf of him and his wife, he told how their daughter was the first girl to escape the scene by running from the Hart Space building and hiding behind a parked car before jumping through an open car door.
“Our nine-year-old daughter was stabbed three times in the back by a coward she didn’t even see,” he said.
“Although she didn’t know what was happening – she knew she had to run. She ran out of the studio door, down the stairs, and out of the building.”
Read more: Southport inquiry as it happened
He said she can be seen “looking scared, confused and pained” in CCTV footage of the incident, adding: “It was troubling for us to see what she had to go through, before either of her parents had arrived at the scene.”
“We are so thankful and proud that despite being critically injured, she was able to make the decisions she did in that terrible moment,” he said.
The girl’s father said his daughter “continues to astound” them with the way she dealt with the attack and her recovery, saying: “It has been inspiring for us to witness.”
Inquiry chair Sir Adrian Fulford at Liverpool Town Hall. Pic: PA
He said she has difficulty sleeping, experiences flashbacks, looks over her shoulder scanning for potential danger when she leaves the house, has a fear of loud noises and has to turn off some songs when they come on the radio.
“Our daughter knows that she is loved,” he said.
“It is through this support and love that she will continue to thrive. We couldn’t be prouder of her. She is our hero.”
Stabbed 33 times
The parents of a girl referred to as C1 told how their “beautiful, articulate, fun-loving little girl” was stabbed 33 times.
After being attacked she escaped the building, but Rudakubana was seen dragging her back inside in CCTV footage played during his sentencing hearing, which drew gasps in court, before she was stabbed 20 more times.
“That is how she became known in this nightmare. The girl that was dragged back in,” her mother said.
Police at the scene. Pic: PA
She thanked the teachers who escaped to call police and flag down help but said: “The most painful of truths for us though, and what has been most devastating to come to terms with, is that there were no adults to help during both of her attacks.
“She was only supported by other children. The courage and strength she found leaves me crushed, but in complete awe.”
She added: “It is these untold stories of remarkable strength and bravery that are missing when we have heard other accounts of this day.”
The mother said the “hours and days that followed the attack were a living hell” and her daughter’s memories – including a concert of her “idol” Taylor Swift – have “been forfeited to make space for the trauma that she carries”.
“We tell her she was brave. How proud we are that she was able to help other girls. How her strength makes us feel strong. How important what she did that day was. She is her own hero. She may be a survivor of this attack, but she is still trying to survive this, every single day,” she said.
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‘We need to understand what went wrong’
Attack ‘changed everything’
The mother of a girl referred to as C8 said she was “like any other seven-year-old little girl”, “with an incredible energy” and “full of life”.
But in a statement read out by a legal representative, she said the attack last year “changed everything” when she got a “panicked phone call” from a friend’s mother, who couldn’t find the girls.
“That moment, the sound of fear in her voice and the panic I felt will never leave me,” she said.
“I rushed to the scene and what I saw is something no parent should ever see. My daughter had sustained serious physical injuries including a stab wound to her arm and a cut to her face and chin.”
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‘We don’t want Elsie forgotten’
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She said her daughter “remembers the attack vividly” and later told her “she thought it had to be fake, because she couldn’t believe something that terrible could really be happening”.
“Where she was once eager to go off with her friends, she now needs my support if it is somewhere public or unknown,” she said.
“Simple days out now need a level of safety planning that we would never have considered before.”
‘Constant flashbacks’
The mother of a girl referred to as Q, who escaped without being physically injured, told how she arrived to collect her daughter to find “children running from the building, screaming and fearing for their lives”.
In a statement read to the inquiry by a legal representative on her behalf, she said it was “the most horrific experience of my life”.
“What I saw on that day will stick with me forever, I constantly have flashbacks and relive what happened,” she said.
She said her daughter has become “very withdrawn” since the attack and has asked her parents, “How will I ever be normal again?”
Rudakubana was jailed for a minimum of 52 years in January and is being investigated over an alleged attack on a prison officer at Belmarsh prison in May.
The public inquiry, announced by Home Secretary Yvette Cooper in January, is looking into whether the attack could or should have been prevented, given what was known about the killer.
Rudakubana, who was born in Cardiff, had contact with police, the courts, the youth justice system, social services and mental health services, and was referred to the government’s anti-extremism Prevent scheme three times before the murders.
A rapid review into his contact with Prevent found his case should have been kept open and that he should have been referred to Channel, another anti-terror scheme.
C1’s mother said: “She deserves the truth, she deserves accountability. She deserves an apology. Our girls deserve an apology.
“Backed up by the promise that changes will be made and this will not be allowed to happen again.”
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