Highlights
- UK share prices close to most stretched levels since 2008 financial crisis.
- AI infrastructure spending could top $5 tn, with half funded through debt.
- Homeowners face £64 monthly increase as 3.9 m refinance mortgages by 2028.
The central bank's financial stability report revealed that share prices in the UK are close to the "most stretched" they have been since the 2008 global financial crisis, while equity valuations in the United States are reminiscent of those before the dotcom bubble burst in 2000.
Valuations are "particularly stretched" for companies focused on AI, the Bank warned. It cited industry figures forecasting spending on AI infrastructure could top $5 tn (£3.8 tn) over the next five years, with around half funded through debt rather than by AI firms themselves.
"Deeper links between AI firms and credit markets, and increasing interconnections between those firms, mean that, should an asset price correction occur, losses on lending could increase financial stability risks," the report stated.
Economic growth concerns
Bank of England governor Andrew Bailey acknowledged the AI sector in the US is "very concentrated", comprising a large portion of the country's stock market value. However, he distinguished the current situation from the dotcom era, noting: "There is a difference to the dotcom situation in that these companies have got positive cash flows, they are not created on hope."
He added "But, as we see, and we saw last week in the debate about whether Google is moving onto Nvidia's patch, it doesn't mean to say everybody is going to win, it doesn't mean to say everyone is going to win equally."
The Bank joins JP Morgan chief executive Jamie Dimon, the International Monetary Fund, and the Organization for Economic Co-operation and Development in warning of potential price corrections.
Despite these concerns, the central bank announced plans to lower the amount of capital High Street banks must hold, marking the first reduction since 2008. The Tier 1 capital requirement will drop from 14 per cent to 13 per cent in 2027, aimed at boosting lending and spurring economic growth.
The report also warned that 3.9 m homeowners, representing 43 per cent of mortgage holders, face refinancing at higher rates by 2028, with typical monthly payments increasing by £64.
