The Bank of England has warned of an increased risk of a sudden market correction, driven by soaring valuations in artificial intelligence companies. Its Financial Policy Committee (FPC) said equity markets, particularly those focused on AI, appear stretched and vulnerable to a shift in sentiment.
The FPC noted that companies like OpenAI and Anthropic have seen valuations surge, with OpenAI now worth $500bn, up from $157bn in October. However, it cautioned that a sharp correction could occur if expectations around AI become less optimistic. The committee highlighted that investors may not have fully accounted for these risks, which could lead to a tightening of finance for households and businesses.
Adding to concerns, research from the Massachusetts Institute of Technology found that 95% of organisations see no return from generative AI investments. The FPC said this could trigger a re-evaluation of high expected future earnings, potentially causing a tumble in stock market valuations.
The committee also flagged risks from the Trump administration's attacks on the US Federal Reserve's independence. It warned that a loss of credibility could lead to a sharp repricing of US dollar assets, with global spillovers affecting the UK financial system.
