The Bank of England sees a period of “increased volatility” on the horizon, driven primarily by risks emanating from the United States. The Financial Policy Committee (FPC) pointed to Donald Trump’s attacks on the Federal Reserve and a fragile AI tech bubble as the key sources of potential turmoil.
The committee’s report specifically warns that a loss of credibility for the Fed could result in “increased volatility, risk premia, and global spillovers.” This political pressure is creating a tense backdrop for markets that are already showing signs of strain.
The most significant strain is in the AI sector, where the FPC sees “stretched” valuations. The massive market worth of companies like OpenAI ($500 billion) and Anthropic ($170 billion) is viewed as a sign of speculative excess, making the market vulnerable to a “sharp market correction.”
The speculative nature of the boom is highlighted by research showing a lack of current returns. An MIT study found 95% of firms are not yet profiting from generative AI, a fact that could trigger a sell-off if it leads to a loss of investor patience.
The FPC concluded that this US-centric volatility poses a “material” threat to the United Kingdom. As a key partner in the global financial system, Britain would be directly impacted by a sharp repricing of US assets or a tech crash, which could restrict the flow of credit to its economy.
