The Bank of England has warned that the immense hype surrounding artificial intelligence could culminate in a market crash that ultimately results in “finance drying up for households and businesses.” The bank’s Financial Policy Committee (FPC) stated that the risk of a “sharp market correction” is on the rise, driven by worryingly high valuations in the AI tech sector.
According to the FPC, equity market valuations, particularly for AI-focused companies, appear “stretched.” The committee cited the explosive growth of firms like OpenAI, now valued at $500 billion, as evidence of a market fueled by optimism rather than proven results. This leaves the market highly vulnerable to a sudden downturn if the lofty promises of AI fail to materialize swiftly.
A recent study from MIT adds a dose of reality to the AI frenzy, revealing that 95% of organizations are currently seeing zero return on their generative AI investments. This disconnect between investor expectation and business reality is a classic hallmark of a speculative bubble. The Bank fears a “sudden correction could occur” if this reality sinks in, causing stock prices to plummet.
The FPC also identified a significant, concurrent threat from US politics. The committee is concerned by Donald Trump’s ongoing rhetoric threatening the independence of the US Federal Reserve. Global financial stability relies heavily on the perceived credibility and impartiality of the Fed.
Any erosion of that trust could lead to a “sharp repricing of US dollar assets,” which would trigger volatility across international markets. For Britain, the consequences could be severe. The FPC warned that the “risk of spillovers to the UK financial system from such global shocks is material,” directly threatening the availability of loans and credit for ordinary people and companies across the country.