Bank of England expert predicts global stock market fall but questions ‘are we prepared?’
The Bank of England (BoE) deputy governor has warned of a decline in global stock markets, saying near-record valuations are unsustainable.
Both UK and US stock markets are trading near all-time highs as investors continue to bet on big future gains, but Sarah Breeden said the bank expected “an adjustment at some point”.
The BoE appears concerned about the stability of financial systems should a market downturn occur, along with other problems, including the Iran and Ukraine wars that have increased global inflation, and private loans that have grown exponentially and are provided by private firms, not banks. There is some concern that this could become a more widespread problem if the companies that borrow this money are unable to repay it, which could lead to deficits for their backers.
Ms Breeden said: “There’s a lot of risk there but asset prices are still at all-time highs. We think there will be an adjustment at some point.”
“What really keeps me awake at night is the possibility of a number of risks crystallizing simultaneously – a major macroeconomic shock, the loss of confidence in private credit, AI and other risky valuations recalibrating – what happens in this environment and are we prepared for it?”
The last significant market crash occurred in 2020 as a result of the Covid pandemic, which saw steep declines alongside very rapid recoveries in most markets. Since then, the US market has experienced declines, especially in 2022 and 2025; second, after Donald Trump first announced his plan to impose tariffs on trading partners around the world.
Stock market declines occur when the stock prices of multiple companies fall in succession after being sold in large quantities. There is no specific amount that a market must fall to be called a “crash,” but 20 percent or more over a short period of time is generally considered a crash.
While a declining or even crashing stock market does not always lead to an economic decline or recession, there is a knock-on effect on both the businesses in the market and those who invest in them.
London’s main index, the FTSE 100, is up 5.2 per cent so far this year despite the economic hit to Britain and the rest of the world from oil prices; Last year, it increased by 24.4 percent. Adding to the absolute lack of correlation is the globalization of many businesses covered by the FTSE indices and their operations in markets outside the UK economy.
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In the USA, the S&P 500 reached its all-time high earlier this week, despite the Iran war, recording an increase of 3.8 percent this year and 32.2 percent compared to the previous year. The world’s six largest public companies, led by Nvidia, Alphabet and Apple, and 10 of the top 12 are listed in the United States.
However, the effects are due to such large companies experiencing a decline in their share prices.
What does it mean for your money?
Those who invest in the market through stocks and shares ISAs or pensions will see their portfolios fall in value.
Theoretically, this is not a problem as long as the assets are not sold at this low valuation point. Most experts recommend weathering market downturns or continuing to buy at average cost, regardless of price, rather than panic selling. When evaluated in the long term, when markets rise, these declines are actually the periods when the greatest returns are achieved. There is no definitive time frame for when markets will recover even after the deepest crises, but historically they have always done so. The UK government is encouraging more British people to invest in retail to increase their long-term wealth.
The other problem is that the value of pensions decreases as retirement approaches, which means the value of their money decreases when they need it most. This makes it important for people to be aware of their overall financial picture as they approach that point in their lives.
For those that generate dividend income from investments (firms that pay a portion of their profits to shareholders), this may be reduced or cut entirely if businesses decide to reallocate the money, causing households to reduce their spending.
When large numbers of people do this, it naturally has an economic impact; lower spending means less revenue for businesses. This may mean that they decide not to hire more people or invest in projects; This means potentially fewer jobs in the market.
For firms in the stock markets, a fall in share price can mean less cash available to reinvest in the business and a reduced ability to borrow money. If there are liabilities tied to the stock price, this can create bigger problems for the business and naturally consumer confidence can double on such issues.
Rather than stock market concerns about what this directly means for people, the BoE appears to be concerned about broader resilience to such shocks.
“What we’re watching is: How might these prices fall? Will there be a sharp adjustment downwards? And if there is such an adjustment, how will that impact the economy? I’m not saying it’s going to happen today, tomorrow or 12 months from now. That makes the system resilient if it does happen,” Ms Breeden, the BoE’s head of financial stability, added.
“Private credit has gone from zero to two and a half trillion dollars in the last 15-20 years. It hasn’t been tested at that scale until now because of the complexity and interconnections it has with the rest of the financial system. What we’re worried about is a private credit crunch rather than a banking-led credit crunch.”
