A potential market meltdown could be on the horizon, according to the Bank of England, which sees growing risks from both the frothy artificial intelligence market and the volatile political landscape in the United States. The bank’s Financial Policy Committee (FPC) stated that the “risk of a sharp market correction has increased,” posing a threat to global financial stability.
At the heart of the concern are the “stretched” valuations of AI technology companies. The FPC noted the incredible rise in the worth of firms like OpenAI (now $500 billion) and Anthropic ($170 billion), suggesting that investor hype has outpaced realistic expectations. This has created a precarious situation where any negative news could trigger a widespread sell-off.
The committee’s apprehension is supported by hard data. A recent MIT study revealed a stark disconnect between AI investment and profitability, with 95% of companies reporting zero returns from generative AI. The Bank warns this could lead to a painful “re-evaluation” of future earnings, causing stock prices to plummet and finance to dry up for households and businesses.
Beyond the tech bubble, the FPC is also deeply concerned about political attacks on the US Federal Reserve. Donald Trump’s ongoing commentary questioning the central bank’s independence is seen as a direct threat to the stability of the global financial system, which relies on a credible Fed and a stable US dollar.
A loss of that credibility could spark a “sharp repricing of US dollar assets,” leading to increased volatility and risk premiums across the globe. The FPC emphasized that the UK, with its globally integrated financial sector, is highly vulnerable to these “spillovers,” which could have a “material” and damaging impact on the nation’s economy.