The Bank of England’s Financial Policy Committee (FPC) sounded the alarm on Wednesday, noting that the risk of a “sharp market correction” has risen sharply. Equity valuations, especially for AI‑centric tech firms, appear stretched, with the top five members of the S&P 500 now accounting for nearly 30 % of the index—a concentration unseen in half a century. The committee warned that any disappointment in AI’s promised returns could trigger a rapid re‑pricing of these high‑flying stocks .
Underlying the concern is a wave of optimism that has pushed AI‑related valuations to levels reminiscent of the dot‑com boom. The FPC highlighted that most businesses have yet to see tangible returns on their AI investments, citing MIT research showing 95 % of firms report zero ROI from generative‑AI projects. This disconnect between hype and real‑world payoff makes markets vulnerable should investor sentiment shift .
The Bank also flagged practical bottlenecks that could puncture the AI hype: power shortages, data‑supply constraints, and commodity‑chain disruptions, as well as any conceptual breakthrough that reshapes infrastructure needs. Coupled with geopolitical tensions, fragmented trade, and pressures on sovereign debt markets, these factors could spill over into the UK financial system, affecting households and businesses already grappling with high borrowing costs .
In short, the FPC’s warning underscores that the current AI‑driven rally is precariously balanced on lofty expectations. If AI adoption stalls or fails to deliver anticipated earnings, the ensuing correction could be swift and severe, reverberating across global markets and the UK economy alike .
