The UK economy could be swamped by “global spillovers” from the United States, the Bank of England has warned, identifying a fragile AI market and political turmoil as the sources of a potential tidal wave. The Financial Policy Committee (FPC) stated that the risk of a “sharp market correction” has grown.
The first source of risk is the “stretched” US tech market, where AI hype has propelled companies like OpenAI to a $500 billion valuation. The FPC fears this is a bubble that could burst, sending a shockwave across the Atlantic.
The second source is political pressure on the US Federal Reserve. The FPC is concerned that Donald Trump’s rhetoric could erode the Fed’s credibility, triggering a “sharp repricing of US dollar assets.” This would create a separate, powerful wave of volatility.
The Bank of England’s primary concern is that these waves could hit the UK simultaneously, overwhelming its financial defences. As an “open economy with a global financial centre,” the UK is particularly susceptible to such events.
The FPC’s conclusion is stark: the “risk of spillovers to the UK financial system from such global shocks is material.” A crisis originating in the US could lead to a credit crunch in the UK, impacting everything from small businesses to the housing market.
