Bank of England warns about possible stock-market correction

11th October 2025

In its latest Financial Policy Committee (FPC) update, the Bank has flagged that the risk of a "sharp market correction" has increased.

A particular concern is the valuation of AI- and tech-oriented companies. The Bank notes that some stock valuations appear stretched, and that those firms are especially vulnerable if expectations about AI fail to deliver.

The Bank compares the current valuation levels (on some metrics) to those seen around the peak of the dotcom boom circa 2000, particularly for tech stocks concentrated in a small number of companies.

It also warns that "material bottlenecks" in AI progress — for example in power, data, supply chains, or necessary infrastructure — could undermine anticipated growth and cut into valuations.

Another structural risk the Bank highlights is the fragility of U.S. Federal Reserve independence. If perceptions shift that the Fed is influenced politically (for example by pressure to loosen rate policy prematurely), that could trigger a repricing in U.S. sovereign debt and ripple out to global markets, including the UK.

Because the UK is an "open economy with a global financial centre," the Bank emphasizes that spillovers from global shocks are material and could transmit stress into UK markets, households, and corporates.

Despite the risks, the Bank continues to judge that the UK banking system is resilient, and it is maintaining buffers (such as the countercyclical capital buffer) to absorb downside stress.

The Bank's warnings don’t guarantee a crash or correction, but they do change the tone: from “markets are okay” to “conditions are becoming riskier.” Some takeaways:

Tech and AI sectors are especially exposed. If investor enthusiasm around AI falters, valuations could fall sharply.

The concentration of market value in a few large companies is a vulnerability: a lot of risk is tied up in a small number of players.

External shocks (U.S. monetary policy, global growth, inflation surprises) are more dangerous in a high-valuation environment.

The Bank is acting prudently, keeping cushions in place to absorb fallout and signalling that it would respond if stress emerged.

Investors and policymakers should pay attention to early signs widening credit spreads, weaker earnings in tech, changes in bond markets, or sudden shifts in sentiment around AI.