Bank of England Warns AI-Linked Market Froth Could Trigger Sharp Correction

The Bank of England has warned that elevated valuations of artificial-intelligence-linked equities leave global markets vulnerable to a sharp correction, with potential knock-on effects for UK growth. In its latest Financial Stability Report, the central bank's Financial Policy Committee said the concentration of gains in a handful of technology and AI-exposed stocks has stretched valuations, meaning any disappointment in earnings or the AI investment outlook could trigger an abrupt repricing that spills into the broader economy. The report also flagged that the rapid development of frontier AI models is heightening cyber and operational risks for banks, insurers and market infrastructure, as reliance on advanced systems and third-party providers grows. Alongside these concerns, the Bank noted persistent vulnerabilities from geopolitical tensions, volatile energy prices tied to the Middle East conflict and elevated government borrowing costs. Despite the risks, it judged the UK banking system to be resilient and well capitalised, able to support households and businesses even under stress. The warnings echo similar cautions from regulators globally, reflecting mounting official concern that enthusiasm for AI has run ahead of fundamentals and could destabilise markets if sentiment turns.