The Bank of England has issued a stark warning regarding the escalating risk of a global market downturn, pinpointing the soaring valuations of artificial intelligence companies as a potential trigger. The bank’s Financial Policy Committee (FPC) highlighted that the possibility of a “sharp market correction” has grown, creating a precarious environment for investors and the broader economy. This caution comes amid a period of intense optimism and hype surrounding AI technology.
This optimism has propelled the valuations of tech firms to staggering heights. For instance, OpenAI’s worth has rocketed to $500 billion, a significant leap from $157 billion just a year ago. Similarly, Anthropic has seen its valuation nearly triple in a matter of months, from $60 billion to $170 billion. The FPC suggests these valuations are “stretched” and leave markets highly vulnerable if the lofty expectations for AI are not met.
Underscoring these concerns is recent research from the Massachusetts Institute of Technology (MIT), which found that a staggering 95% of organizations are seeing no return on their investments in generative AI. This data feeds the fear that once investors realize the anticipated profits are not materializing, a rapid sell-off could ensue, leading to a tumble in stock market values. The Bank warned this could “drive a re-evaluation of currently high expected future earnings.”
Compounding the financial fragility is a separate but significant political threat emanating from the United States. The committee expressed unease over continued commentary from the Trump administration questioning the independence of the US Federal Reserve. Such pressure could erode global confidence in the central bank, which is crucial for maintaining stability in the world’s financial systems.
A loss of credibility for the Fed could trigger a “sharp repricing of US dollar assets,” including sovereign debt, leading to increased volatility and risk. As the UK is an open economy with a major global financial hub, the FPC stressed that the “risk of spillovers to the UK financial system from such global shocks is material,” potentially choking off finance for households and businesses and amplifying the impact of an AI-driven market correction.