The Bank of England is warning of a painful hangover that could follow the current artificial intelligence hype party. The Financial Policy Committee (FPC) stated that the “risk of a sharp market correction has increased” due to the speculative excesses that have defined the recent tech boom.
The party has been wild, with “stretched” valuations pushing the worth of companies like OpenAI to $500 billion. The FPC’s concern is that this celebration is based on the promise of future success, not on current reality.
The morning-after reality check could be delivered by data like the recent MIT study, which found 95% of firms are not yet profiting from generative AI. The Bank fears that as this sober reality sinks in, it will trigger a sudden and severe market downturn.
The Bank warned that the hangover would be felt across the economy, as a market crash would lead to tighter credit conditions, making it harder for businesses and households to borrow.
This situation is made more volatile by political risks, with the FPC flagging Donald Trump’s attacks on the US Federal Reserve as a major threat. For the UK, the FPC warns the “spillovers” from the end of the AI party would be “material” and unwelcome.
