UK share values ‘most stretched’ since 2008, Bank warns

The Bank of England has warned of a “drastic correction” in the values ​​of big tech companies as fears of an artificial intelligence (AI) bubble grow.

It was stated that stock prices in the UK are close to the “most tense” level since the 2008 global financial crisis, while stock valuations in the USA are reminiscent of the values ​​before the dotcom bubble burst.

The central bank’s financial stability report warned that valuations were “particularly stretched” for companies focusing on artificial intelligence.

He said that the growth of the sector in the next five years will be driven by trillions of dollars of debt and that the risk to financial stability will increase if the value of companies decreases.

The Bank of England has cited industry figures predicting spending on AI infrastructure could exceed $5 trillion (£3.8 trillion).

Most of this will be financed by AI firms, but about half will come from external sources, mostly through debt, he said.

“Deeper connections between AI firms and credit markets, and increased linkages between these firms, mean that losses in credit could increase financial stability risks in the event of a correction in asset prices,” he said.

The Bank of England is the latest institution to sound the alarm about a possible collapse. The value of artificial intelligence companies It is reminiscent of earlier events such as the financial crisis and the dotcom bubble.

Jamie Dimon, CEO of JP Morgan He told the BBC in October He is “much more concerned than others” about the risk of a serious correction in the market in the coming years. The International Monetary Fund (IMF) also warned of a “sudden, sharp correction” in a recent report, saying markets appeared “complacent”.

The dotcom booms refer to a period in the late 1990s; During this period, values ​​of early internet companies had soared amid a wave of optimism about the then-new technology, before the bubble burst in early 2000 and many share prices crashed.

This led to the bankruptcy of some companies and job losses.

A decline in share prices can also affect the value of people’s savings, including their pension funds.

Fears over AI-related stock market correction come as Chancellor Rachel Reeves used her Budget to: Encourage savers to pile cash into stocks and shares by reducing the amounts that can be saved in cash.

In its latest report, the Bank of England said that risks to financial stability increased in 2025, citing geopolitical tensions, global trade wars and rising borrowing costs of governments.

It was stated that the increasing tension between countries particularly increases the possibility of cyber attacks and other disruptions.

Elsewhere in its financial stability report, the Bank of England warned that homeowners getting off fixed-rate mortgages over the next two years will face a £64 increase in their monthly repayments.

The central bank said the typical owner-occupant resident coming off a fixed interest rate would see an 8% increase in their bills as the impact of higher interest rates continues.

In total, 3.9 million people, or 43 percent of mortgage holders, are expected to refinance at higher rates by 2028, the bank said.

But one-third will see their monthly payments fall during this period, he added, adding that interest rates have fallen significantly since the rise in 2022.

The Bank of England’s base rate, which affects the cost of borrowing for individuals including mortgages, has fallen to 4 per cent from a peak of 5.25 per cent in 2024.