Surging government debts threaten to hammer the British economy and drive up borrowing costs for households, businesses and the Treasury, the Bank of England has warned.

By William Schomberg, Lawrence White and Suban Abdulla LONDON (Reuters) -The Bank of England warned on Friday that higher trade barriers could hit global growth and feed uncertainty about inflation, potentially causing volatility in financial markets and pushing up borrowing costs for businesses and consumers.

More work is needed to tackle risks outside the banking sector, according to a Bank of England study which found that a market crisis would be amplified by fire sales of assets by pension funds, hedge funds and other investors.

Non-banks are often not able to predict how their counterparties, investors and markets will behave in times of stress, the Bank of England said on Friday, warning the sprawling sector risked being “underprepared” in times of crisis.

The Bank of England has issued a fresh warning about the ability of non-bank institutions to withstand a major market shock, in a first-of-its kind stress testing of the UK financial system.