Governor of the Bank of England, Andrew Bailey, has warned that the central bank must remain "very alert" to the potential financial stability risks stemming from heightened geopolitical tensions, as former US President Donald Trump renews his pursuit of acquiring Greenland.
Geopolitical Uncertainty a Key Concern for Financial Stability
Speaking to the Treasury Committee of Parliament on Tuesday 20 January 2026, Bailey emphasised that the escalating situation would have consequences for global financial stability. He stated that the "level of geopolitical uncertainty and geopolitical issues is a big consideration" for the Bank due to their potential to disrupt financial systems.
The governor provided context, noting that global economic growth had been more stable than anticipated. However, he stressed that the Bank of England continues to "worry considerably" about how financial markets might react to such geopolitical shocks.
Market Reaction More Muted Than Feared
In a notable observation, Bailey highlighted that the initial response from global financial markets to President Trump's plans and associated tariff threats has been "more muted than we would have feared and expected."
Earlier in the week, Trump declared that the UK and other nations opposing his ambitions for Greenland would face 10% tariffs on all products starting next month. He warned these would escalate to 25% from 1 June unless a deal is finalised for Washington to purchase the autonomous Danish territory.
Despite this relative calm, Bailey was clear that the muted reaction should not breed complacency. "I take neither of those as a point of assurance. We have to be very alert to these things," he told MPs.
FTSE 100 and European Indices Slide on Tariff News
Financial markets have shown signs of strain as investors digest the potential for renewed trade disruption. The FTSE 100 Index fell by approximately 120 points, or 1.2%, to 10,075 points shortly after opening on Tuesday.
This decline followed a 0.4% drop on Monday, indicating a growing unease. The contagion spread to major European indices, with Germany's Dax and France's Cac 40 also recording losses in value.
The Bank of England's vigilance underscores the fragile balance in international markets, where political rhetoric can swiftly translate into economic volatility, testing the resilience of the UK's financial institutions.
