Bank of England Warns Risky Asset Valuations Look Stretched in Latest Stability Report

The Bank of England's July 2026 Financial Stability Report cautioned that vulnerabilities in risky asset valuations, sovereign debt markets and riskier credit markets, including private credit, remain elevated and have become more pronounced since its December assessment. The Financial Policy Committee warned that stretched valuations increase the risk of a sharp market correction, which could tighten financial conditions for households and businesses, particularly if triggered by geopolitical shocks or a sudden repricing of risk. The report also highlighted growing risks from artificial intelligence, noting that rapid advances in the most capable frontier AI models could materially increase cyber and operational vulnerabilities across banks, insurers and asset managers. Separately, the Bank noted survey data showing that a large majority of financial firms now rank cyber-attacks among the top risks to the system. The committee stressed that while the core UK banking system remains resilient and well-capitalised, market-based finance and interconnected global markets leave the system exposed to external shocks. The warnings landed the same week that a global sell-off in technology and semiconductor stocks rattled markets worldwide.