The Bank of England is questioning the sustainability of the recent market rally driven by artificial intelligence, warning that it is built on a fragile foundation. The Financial Policy Committee (FPC) stated that “stretched” valuations have increased the risk of a “sharp market correction” that could wipe out recent gains.
The rally has been led by tech stocks, with AI-focused firms like OpenAI and Anthropic seeing their valuations soar to $500 billion and $170 billion. The FPC’s concern is that this is a speculative surge, not a fundamentally sound advance.
The Bank’s skepticism is rooted in data showing a lack of underlying performance. A study from MIT, for example, found that 95% of organizations are getting zero return on their generative AI investments. This suggests the rally is disconnected from real economic value creation.
The FPC warned that a “sudden correction could occur” if investors begin to focus on these poor returns, leading to a rapid reversal of the market’s upward trend.
This financial vulnerability is amplified by geopolitical risks, particularly Donald Trump’s ongoing attacks on the independence of the US Federal Reserve. A loss of confidence in the Fed could trigger a separate market shock, making a sustained rally even less likely. The FPC warned that the UK is materially exposed to the fallout.