The Bank of England is on high alert as political and technological risks originating from the United States continue to mount. The Financial Policy Committee (FPC) warned in a new assessment that the combination of a potential AI bubble and threats to the Federal Reserve’s independence has increased the likelihood of a “sharp market correction.”
The tech risk is centred on “stretched” valuations for AI companies. The FPC pointed to the massive market worth of firms like OpenAI ($500 billion) as a sign of a market driven by hype rather than fundamentals, making it vulnerable to a sudden downturn. This is supported by MIT research showing 95% of firms get no ROI from AI.
The political risk stems from Donald Trump’s “continued commentary” questioning the Fed’s independence. The FPC views this as a serious threat to global stability, as the Fed’s credibility is the bedrock of the international financial system. A loss of that credibility could spark a chaotic “repricing of US dollar assets.”
The Bank’s concern is that these two risks are not only significant on their own but could interact in unpredictable ways, creating a more severe crisis. A tech crash could amplify political instability, and vice versa.
The FPC concluded that the UK must be prepared for the consequences. The “risk of spillovers… is material,” and a crisis imported from the US could have a profound and negative impact on the British economy.