A “sudden correction could occur” in global equity markets, the Bank of England’s Financial Policy Committee has warned, singling out the artificial intelligence sector as a point of extreme vulnerability. Policymakers noted that on several measures, stock market valuations appear “stretched,” leaving investors exposed to significant losses if the current optimism surrounding AI proves to be unfounded.
The central bank’s concern is rooted in the massive surge in the value of tech companies. The report implicitly references the valuations of firms like OpenAI ($500 billion) and Anthropic ($170 billion) as evidence of a market driven by hype. The FPC stated that this situation “leaves equity markets particularly exposed should expectations around the impact of AI become less optimistic.”
The committee’s fears are not purely speculative. They are backed by recent data, including an MIT study that found the vast majority of companies (95%) have seen no financial return on their generative AI investments. This suggests a chasm between market expectations and economic reality. The Bank warned that this disconnect could lead to a sharp “re-evaluation of currently high expected future earnings,” triggering a market crash.
In addition to the AI bubble, the FPC report highlights another major threat to global stability: political attacks on the US Federal Reserve. The committee expressed unease about rhetoric from Donald Trump’s administration that could undermine the central bank’s credibility. Such a development would be perilous for the global financial system.
If investors were to lose faith in the Fed’s independence, it could spark a “sharp repricing of US dollar assets,” causing turmoil in markets for US government debt and beyond. The FPC stressed that the UK is not immune to these foreign shocks. A crisis originating in the US would have “material” spillover effects on the UK financial system, potentially causing a credit crunch that would impact the entire economy.