The Bank of England has warned of a growing risk of a 'sudden correction' in global markets, citing concerns over soaring valuations of leading AI technology companies. The Bank's financial policy committee (FPC) stated that 'the risk of a sharp market correction has increased,' noting that equity market valuations appear stretched, particularly for technology companies focused on artificial intelligence.
The FPC highlighted that continued hype and optimism about AI potential have driven valuations to new heights, with firms like OpenAI now worth $500bn (£372bn) and Anthropic nearly trebling its valuation from $60bn in March to $170bn last month. However, the committee warned that a sudden correction could occur if expectations around AI become less optimistic, potentially leading to a drying up of finance for households and businesses.
Adding to the concerns, recent research from the Massachusetts Institute of Technology showed that 95% of organisations are getting zero return from their investments in generative AI. The FPC said this could drive a re-evaluation of currently high expected future earnings, and that material bottlenecks to AI progress—from power, data, or commodity supply chains—could also harm valuations.
The committee also warned of threats from the Trump administration's continued attacks on the US Federal Reserve, stating that a sudden change in perceptions of Fed credibility could result in a sharp repricing of US dollar assets, with potential global spillovers. The FPC noted that as an open economy with a global financial centre, the risk of spillovers to the UK financial system from such shocks is material.
